Can You Open a Roth IRA If You Have a 401(k)?

You can contribute to both a 401(k) through your employer and a Roth Individual Retirement Arrangement (IRA) in the same year. The ability to contribute to both is governed by separate rules, with Roth IRA eligibility based on your income and each account having its own contribution limit. Using both a 401(k) and a Roth IRA can be an effective way to diversify your retirement savings.

Determining Your Roth IRA Contribution Eligibility

Your eligibility to contribute directly to a Roth IRA is determined by your income. The Internal Revenue Service (IRS) sets specific income limitations based on your tax filing status. These thresholds are calculated using your Modified Adjusted Gross Income (MAGI), which is your Adjusted Gross Income (AGI) with certain deductions, like student loan interest, added back.

For 2025, single filers with a MAGI below $150,000 can contribute the full amount to a Roth IRA. For those married and filing a joint tax return, the full contribution is allowed for a MAGI below $236,000. These figures represent the start of a “phase-out range,” meaning that as your income increases, the amount you are permitted to contribute is gradually reduced.

Once your MAGI exceeds the upper limit of this range, you cannot make direct contributions to a Roth IRA for that year. For 2025, the ability to contribute is eliminated for single filers with a MAGI of $165,000 or more and for joint filers at $246,000 or more. It is important to monitor these income thresholds annually, as the IRS often adjusts them to account for inflation.

How Contribution Limits Work for Each Account

The contribution limits for 401(k)s and IRAs are entirely separate. The amount you contribute to your workplace 401(k) has no bearing on the amount you can contribute to your Roth IRA, and vice versa.

For 2025, an employee can contribute up to $23,500 to their 401(k). The contribution limit for IRAs—which is a combined limit for all of your traditional and Roth IRAs together—is $7,000. This means an individual could contribute the full $23,500 to a 401(k) and also contribute the full $7,000 to a Roth IRA in the same year, provided they meet the income eligibility rules.

The IRS also allows for catch-up contributions for individuals age 50 and over. For IRAs, the catch-up amount is an extra $1,000. For 401(k)s, the catch-up contribution for those 50 and over is an additional $7,500. However, for 2025, a new provision allows those aged 60, 61, 62, and 63 to make a higher catch-up contribution of $11,250.

Strategic Reasons for Holding Both Accounts

Holding both a traditional 401(k) and a Roth IRA offers a strategy known as tax diversification. A traditional 401(k) is funded with pre-tax dollars, which lowers your taxable income in the present. Your investments grow tax-deferred, but withdrawals in retirement are taxed as ordinary income. This approach is beneficial if you expect to be in a lower tax bracket during retirement than in your working years.

A Roth IRA operates in the reverse. Contributions are made with after-tax dollars, meaning you get no upfront tax deduction. The advantage is that your investments grow completely tax-free, and qualified withdrawals in retirement are also tax-free. This can be advantageous if you anticipate being in the same or a higher tax bracket in retirement.

Having both accounts gives you flexibility in managing your tax liability during retirement. You can draw from your taxable 401(k) funds in years when your income is lower and from your tax-free Roth IRA funds in years when you might have higher expenses. Another difference is that Roth IRAs do not have Required Minimum Distributions (RMDs) for the original account owner, unlike 401(k)s, which mandate withdrawals starting at age 73. This allows your Roth IRA funds to continue growing tax-free throughout your lifetime.

The Backdoor Roth IRA for High-Income Earners

If your income exceeds the limits for direct Roth IRA contributions, a method known as the “Backdoor Roth IRA” may be an option. This is a two-step process that involves first making a contribution to a Traditional IRA and then converting those funds to a Roth IRA.

There are no income limits on making non-deductible contributions to a Traditional IRA. After you have funded the Traditional IRA, you can initiate a conversion to a Roth IRA. However, it is important to understand a tax consideration called the pro-rata rule.

The pro-rata rule applies if you have existing pre-tax funds in any other Traditional, SEP, or SIMPLE IRAs. The rule requires that the conversion to a Roth IRA be a proportional mix of your pre-tax and after-tax IRA funds. This means a portion of the amount you convert will be considered taxable income. If you do not have any other pre-tax IRA funds, the conversion is a tax-free event.