Can You Have Multiple Retirement Accounts?

Individuals often wonder if they can maintain multiple retirement accounts. It is permissible to hold multiple types of retirement accounts, a common strategy for saving for the future. This approach allows for diversification in retirement planning, offering different features and benefits based on individual circumstances. Understanding how these accounts work together, including their rules for contributions and distributions, is important.

Eligibility and Common Account Combinations

Individuals can hold various retirement accounts simultaneously. These accounts serve different purposes and are often accessed through employment or individual investment.

401(k)

A 401(k) is an employer-sponsored, defined-contribution plan. It allows employees to contribute a portion of their paycheck, often with an employer match, either on a pre-tax or Roth basis.

Traditional and Roth IRAs

A Traditional IRA is a personal retirement account that an individual opens and funds themselves, offering potential tax-deductible contributions and tax-deferred growth. In contrast, a Roth IRA is an individual retirement account funded with after-tax dollars, meaning that qualified withdrawals in retirement are tax-free.

SEP IRA

For self-employed individuals or small business owners, a Simplified Employee Pension (SEP) IRA provides a retirement savings option where the employer makes contributions to an IRA established for themselves and their eligible employees.

SIMPLE IRA

Another option for small businesses is the Savings Incentive Match Plan for Employees (SIMPLE) IRA, an employer-provided plan designed for businesses with 100 or fewer employees. Both employees and employers can contribute to a SIMPLE IRA.

Understanding Contribution Rules

Specific contribution limits apply to each retirement account type, adjusted annually by the IRS. For 2025, the employee deferral limit for a 401(k) plan, including both traditional and Roth 401(k)s, is $23,500. This limit applies across all 401(k) accounts an individual may have, even if they participate in multiple plans through different employers.

Individuals aged 50 and older can make additional “catch-up” contributions to their 401(k)s, allowing for an extra $7,500 in 2025, bringing their total employee contribution to $31,000. A higher catch-up contribution limit of $11,250 applies for those aged 60 to 63 in 2025, permitting a total employee contribution of up to $34,750 in these plans. The total combined employee and employer contributions to a 401(k) plan for 2025 is $70,000, or 100% of the employee’s salary, whichever amount is lower. Employer contributions, such as matching contributions or profit-sharing, do not count against an individual’s personal employee deferral limit.

Traditional and Roth IRAs share a single combined annual contribution limit. For 2025, this limit is $7,000. Individuals aged 50 and over can make an additional $1,000 catch-up contribution to their IRAs, increasing their total contribution capacity to $8,000 for 2025. Eligibility to contribute to a Roth IRA is subject to modified adjusted gross income (MAGI) limitations, which can reduce or eliminate the ability to contribute the full amount. While there are no income limits to contribute to a Traditional IRA, the deductibility of contributions may be phased out based on income if the individual is also covered by a workplace retirement plan.

In a SEP IRA, only the employer makes contributions, and elective salary deferrals are not permitted. For 2025, the maximum contribution an employer can make to a SEP IRA is the lesser of 25% of an employee’s compensation or $70,000. Self-employed individuals contribute to their own SEP IRA as the employer. SEP IRAs do not have specific catch-up contribution provisions for older workers. An individual can still contribute to a separate Traditional or Roth IRA up to the standard IRA limits, even if they participate in a SEP IRA.

For a SIMPLE IRA, employees can make salary reduction contributions, with a limit of $16,500 for 2025. Employees aged 50 and older can contribute an additional $3,500 as a catch-up contribution in 2025, for a total of $20,000. A higher catch-up contribution of $5,250 applies for those aged 60 to 63 in 2025, allowing for a total of $21,750. Employers are required to make contributions to SIMPLE IRAs, either through a matching contribution or a non-elective contribution. Employee elective deferrals to a SIMPLE IRA count towards the total annual limit on elective deferrals if an individual also participates in other retirement plans like a 401(k).

Tax Treatment and Distribution Considerations

Tax implications vary based on whether contributions are pre-tax or after-tax. Contributions to Traditional 401(k)s, Traditional IRAs, SEP IRAs, and SIMPLE IRAs are made with pre-tax dollars, meaning they may be tax-deductible in the year of contribution, which can reduce current taxable income. The investments within these accounts grow on a tax-deferred basis, with taxes only becoming due when withdrawals are made in retirement, at which point they are taxed as ordinary income.

In contrast, contributions to Roth 401(k)s and Roth IRAs are made with after-tax dollars, meaning there is no immediate tax deduction. Qualified withdrawals in retirement, including earnings, are entirely tax-free.

Required Minimum Distributions (RMDs) are mandatory withdrawals that apply to Traditional 401(k)s, Traditional IRAs, SEP IRAs, and SIMPLE IRAs once the account holder reaches age 73 for most individuals. If an individual has multiple Traditional IRAs, the RMD amount is calculated for each individual IRA, but the total RMD amount can be withdrawn from any one or combination of their Traditional IRAs. For multiple 401(k) plans, RMDs must be taken separately from each plan. Roth IRAs are distinct in that they do not have RMDs for the original owner during their lifetime, providing greater flexibility in managing distributions.

Withdrawals from Roth accounts are qualified and are tax-free if the account has been open for at least five years and the owner is age 59½ or older, or meets specific other criteria such as disability or a first-time home purchase. For most retirement accounts, withdrawals made before age 59½ are subject to a 10% early withdrawal penalty, in addition to being taxed as ordinary income, unless a specific IRS exception applies.