If You Have Two Jobs, Can You Have Two 401(k)s?

Saving for retirement can be complex when juggling multiple jobs, especially if both offer a 401(k) plan. While having access to two accounts might seem advantageous, contribution limits and tax rules must be considered. Understanding how these accounts interact helps maximize savings while staying within IRS regulations.

Plan Eligibility at Each Job

Each employer sets its own 401(k) eligibility rules, meaning you may not qualify for both plans immediately. Some companies require a waiting period before enrollment, ranging from 30 days to a full year. Others have minimum work-hour requirements, such as 1,000 hours per year, which could be a hurdle if one job is part-time. Reviewing plan documents or consulting HR clarifies when and how you can participate.

Even if both jobs offer a 401(k), plan features may differ significantly. Some employers provide immediate vesting, while others require several years of service before you can keep employer contributions. Matching contributions also vary—some companies offer generous matches, while others provide none. Understanding these differences helps prioritize contributions based on which plan offers better benefits.

Consolidating Overall Contributions

Managing two 401(k) plans requires careful attention to IRS contribution limits, which apply collectively rather than per account. For 2024, the employee deferral limit is $23,000, with an additional $7,500 catch-up contribution allowed for those aged 50 or older. If you contribute $10,000 to one plan, you can only defer up to $13,000 into the other. Employer contributions do not count toward this cap but are subject to a separate total limit of $69,000 (or $76,500 for those eligible for catch-up contributions).

Strategically allocating contributions optimizes employer matching benefits while ensuring compliance with IRS rules. If one employer offers a higher match percentage or better investment options, prioritizing contributions to that plan may yield better long-term growth. Some plans also have lower administrative fees, which impact net returns over time. Evaluating expense ratios, fund selections, and match structures helps determine the best allocation strategy.

Tax treatment depends on whether contributions go into traditional or Roth 401(k) accounts. Traditional 401(k) contributions reduce taxable income in the current year but are taxed upon withdrawal, whereas Roth contributions are made with after-tax dollars but allow for tax-free withdrawals in retirement. Balancing contributions between pre-tax and Roth accounts across two jobs can provide tax diversification, potentially reducing tax liability in retirement.

Distribution Timing Considerations

Managing withdrawals from multiple 401(k) accounts adds complexity, especially when considering required minimum distributions (RMDs). The IRS mandates that account holders begin RMDs from traditional 401(k) plans by April 1 of the year following the year they turn 73. If both plans are with former employers, RMDs must be calculated and withdrawn separately, as 401(k) balances cannot be combined for RMD purposes like IRAs can.

Leaving one job while continuing to work at the other can also impact distribution timing. If you remain employed and do not own 5% or more of the company, you may be able to delay RMDs from that employer’s 401(k) plan until retirement. However, this exception does not apply to funds in a previous employer’s plan, meaning withdrawals may be required even if you are still working elsewhere.

Rolling over one account into an IRA or consolidating plans through a direct transfer can simplify future distributions. An IRA rollover allows more flexibility in withdrawal timing and investment options, though it subjects funds to IRA-specific RMD rules. Direct rollovers avoid tax penalties, but any missteps—such as taking a distribution instead of transferring funds directly—could trigger immediate taxation and potential early withdrawal penalties if under age 59½.

Tax Requirements for Multiple Accounts

Holding two 401(k) accounts can create tax complications beyond contribution limits. Traditional 401(k) distributions are taxed as ordinary income, meaning they are subject to federal and state income tax rates in the year they are withdrawn. If both accounts are tapped simultaneously during retirement, combined withdrawals could push you into a higher tax bracket. Staggering withdrawals or converting portions to a Roth IRA can help manage taxable income more effectively.

Employer stock in a 401(k) introduces another tax consideration—net unrealized appreciation (NUA). If company stock is distributed as part of a lump-sum withdrawal and moved to a taxable brokerage account instead of being rolled into an IRA, only the original cost basis is taxed as ordinary income. The appreciation is then taxed at the lower long-term capital gains rate when sold. This strategy can reduce overall tax liability, but it requires precise execution to meet IRS requirements.