Can You Max Out a 401(k) and a Roth IRA?

Many individuals wonder if it is possible to contribute the maximum allowed amounts to both a 401(k) and a Roth IRA within the same year. This goal is achievable and effective for building a diversified retirement portfolio. Utilizing both types of accounts allows for a blend of tax-deferred growth through a 401(k) and tax-free withdrawals in retirement from a Roth IRA. This approach provides flexibility and helps manage future tax liabilities.

Understanding 401(k) Contribution Limits

A 401(k) plan is an employer-sponsored retirement savings vehicle that allows employees to contribute a portion of their salary before taxes are calculated, or on an after-tax Roth basis if the plan offers it. For 2025, employees can contribute up to $23,500 to their 401(k) accounts. This limit applies to the sum of pre-tax and Roth 401(k) contributions made by the employee.

Individuals aged 50 and older are eligible to make additional “catch-up” contributions. In 2025, this catch-up contribution is $7,500, allowing those aged 50 and over to contribute a total of $31,000. Furthermore, under the SECURE 2.0 Act, a higher catch-up contribution of $11,250 is available for those aged 60, 61, 62, and 63, bringing their total employee contribution limit to $34,750, if their plan allows.

Beyond employee contributions, employers can also contribute to a 401(k) plan through matching contributions or profit-sharing arrangements. These employer contributions are separate from the employee’s elective deferral limit. The Internal Revenue Service (IRS) sets an overall limit on the total contributions made to a 401(k) account each year, which includes both employee and employer contributions.

For 2025, the combined employee and employer contribution limit for a 401(k) is $70,000. For those aged 50 and older, including their catch-up contributions, the total combined limit increases to $77,500. For individuals aged 60-63 who utilize the enhanced catch-up contribution, the overall limit is $81,250.

Understanding Roth IRA Contribution Rules

A Roth IRA is an individual retirement arrangement funded with after-tax dollars; contributions are not tax-deductible. However, qualified withdrawals in retirement, including earnings, are tax-free. For 2025, the direct contribution limit for a Roth IRA is $7,000.

Similar to 401(k)s, individuals aged 50 and over can make additional catch-up contributions to their Roth IRA. This allows them to contribute an extra $1,000, bringing their total annual contribution to $8,000 in 2025. Unlike 401(k)s, Roth IRAs do not involve employer contributions.

Roth IRA contributions have Modified Adjusted Gross Income (MAGI) limitations, which can affect eligibility to contribute directly. For single filers and those married filing separately (who did not live with their spouse), the ability to make a full Roth IRA contribution in 2025 begins to phase out if their MAGI is $150,000 or more, and they are entirely ineligible if their MAGI reaches $165,000 or more. For those married filing jointly or qualifying widow(er)s, the phase-out range starts at a MAGI of $236,000 and they are ineligible at $246,000 or more.

For married individuals filing separately who lived with their spouse at any point during the year, a much stricter MAGI limit applies, with the ability to contribute phasing out between $0 and $10,000 of MAGI. These income thresholds are important considerations, as exceeding them can reduce or eliminate the possibility of making direct Roth IRA contributions.

Strategies for Maximizing Both

The contribution limits for 401(k)s and Roth IRAs are generally independent; maximizing one does not reduce the other’s direct contribution limit. This independence allows individuals to strategically maximize savings across both account types, providing tax diversification for retirement. By combining a tax-deferred 401(k) with a tax-free Roth IRA, individuals can prepare for various tax scenarios in retirement, offering flexibility in managing future income.

For individuals whose income exceeds the direct Roth IRA contribution limits, the “Backdoor Roth IRA” strategy provides a method to still fund a Roth account. This involves contributing after-tax money to a Traditional IRA, which has no income limitations for contributions, and then converting that Traditional IRA balance to a Roth IRA.

When executing a Backdoor Roth, it is important to be aware of the “pro-rata rule” if you have existing pre-tax Traditional IRA balances. This rule mandates that a portion of the conversion will be taxable if you hold both pre-tax and after-tax Traditional IRA funds, as the conversion is considered to come proportionally from both types of funds. Proper planning, such as consolidating pre-tax IRA funds into a 401(k) before initiating a Backdoor Roth, can help avoid unexpected tax liabilities.

The best strategy involves considering one’s financial situation, income levels, and employer retirement plan options. For instance, if an employer offers a Roth 401(k) option, contributing to it can provide similar tax-free growth benefits as a Roth IRA, but with much higher contribution limits. Maximizing both a 401(k) and a Roth IRA, whether directly or through strategies like the Backdoor Roth, can enhance retirement savings by leveraging different tax treatments.