Can I Still Contribute to an IRA If I Have a 401(k) Plan at Work?

Participating in a 401(k) plan at work is a great way to build your retirement nest egg because of the high contribution limits. If you're looking to further pad your retirement savings, you might also be able to contribute to an individual retirement account. However, you might not be able to deduct your IRA contributions.

IRA Requirements

Just because you can contribute to a 401(k) plan doesn't mean you'll be allowed to contribute to an IRA. For a traditional IRA, you must be under 70 1/2 years old at the end of the year. For Roth IRAs, your modified adjusted gross income must fall below the annual income limits. Since 401(k) plans don't restrict contributions by income, it's possible that even though you're putting money in your 401(k), you're making too much money to contribute to a Roth IRA.

Deduction Limits

Though you're allowed to contribute to a traditional IRA when you're contributing to a 401(k) plan, you can't deduct your contribution if your modified adjusted gross income is too high. The limits are based on your filing status and adjust annually for inflation. Your 401(k) plan also impacts your spouse's ability to deduct traditional IRA contributions. On the other hand, since Roth IRAs are never deductible to begin with, contributing to a 401(k) plan at work has no impact on your Roth IRA contribution.

Phaseout Ranges

These limits aren't just a cliff that if you're one dollar over you suddenly lose your entire deduction. Rather, each filing status has a phaseout range. For 2013, if you're contributing to a 401(k) plan and you're single, your maximum deduction starts dropping when your modified adjusted gross income exceeds $59,000 and is completely eliminated at $69,000. For joint filers, the deduction starts going down at $95,000 and fully phases out at $115,000. If you're covered but your spouse isn't, your spouse's traditional IRA deduction starts dropping when your MAGI hits $178,000 and disappears at $188,000.

Calculating Maximum Deductions

When your income falls in the phaseout range, you have to calculate your maximum deduction. First, subtract the lower end of the phaseout range from your MAGI. Next, divide the result by the phaseout range size. Finally, multiply the result by your maximum contribution. Suppose you're single, your MAGI is $63,000 and your contribution limit is $5,500. First, subtract $59,000 from $63,000 to get $4,000. Next, divide $4,000 by $10,000 to get 0.4. Finally, multiply 0.4 by $5,500 to get $2,200, which represents your maximum deduction.

Photo Credits

  • Ryan McVay/Photodisc/Getty Images

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.