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By Heritage Bank on October 28, 2022
2 minute read

Can I Open an IRA If I Have a 401k?

At Heritage Bank, we provide business owners, individuals, and families with the competitive financial products they need to pursue their ambitions and save for the future. When people choose to bank with us, one question they often ask is if they can contribute to both an IRA and 401k plan. 

The short answer is yes! It’s a common practice that may offer significant tax advantages. Turn to Heritage Bank to understand which IRA options fit your portfolio and how regular IRA contributions can affect your overall retirement savings plan.

What is an IRA?

An IRA is an individual retirement account you set up with a financial institution, such as a community bank. Unlike a 401k plan sponsored by an employer, an IRA gives you the ability to fund and invest in the account on your own.

There are many different types of IRAs available. Below we've listed 5:

Traditional IRA
A Traditional IRA allows you to contribute pre-tax income toward your investments. Contributions and earnings are tax-deferred until the funds are withdrawn. To qualify, you must have earned income in the year in which you are contributing.

Roth IRA
A Roth IRA is a special type of tax-advantaged retirement account that allows you to contribute income on which you've already paid taxes. Contributions are not deductible, which means you won't receive an upfront tax break. However, earnings made to a Roth IRA can grow tax free.

Additionally, when you reach the age of retirement (59 ½), you can withdraw your money tax-free, provided you've had the account for at least 5 years.

Rollover IRA
If you decide to change employers, you may have the option of rolling over any contributions and earnings from their 401K plan into a traditional IRA.

Simplified Employee Pension (SEP) IRA
If you are an employer or self-employed, consider setting up a SEP IRA. Smaller businesses unable to manage the operating costs of a 401k employer-sponsored plan use a SEP IRA to receive tax deductions on contributions made to each employee’s IRA.

Coverdell IRA
A financial tool designed to assist families fund education-related expenses, contributions and earnings may be spent on tuition, books and other qualified purchases. It’s a tax-free way to grow investments and withdrawals are tax-free withdrawals when funds are spent on qualifying purchases.

Benefits of Starting an IRA with a 401k

Having a 401k through your current employer gives you a great head start on your retirement planning and future. Your contributions come directly out of your paychecks, and oftentimes, your employer will match a certain percentage of your contributions—which means more money goes into your savings.

IRAs allow you to more closely manage the account and enjoy more investment options than may be available through an employer-sponsored plan. IRAs also allow you to take advantage of tax-deferred or tax-free growth opportunities you may not have access to otherwise.

Just note that there are certain IRS-determined income limits for deductible IRA contributions if you also have a 401(k) plan through an employer. For this reason, it's important to meet with an experienced financial team to walk you through your options and choose the best IRA for your household income and contributions.

Ready to Start an IRA?
If you'd like to learn more about opening an IRA, we encourage you to visit any of our branch locations. To book an appointment, you can call a branch near to you, or walk in during business hours. A member of our team will be happy to assist you.

At Heritage Bank, our mission is to support the communities we serve with better banking options. Discover how we can help you plan for your future today.

Heritage Bank. Member FDIC.


Published by Heritage Bank October 28, 2022