401K contribution and IRA in same year?

[Danarand1]

I've just left my current job where I've already contributed the max ($19,500) to my 401k plan for 2021. My new employer is a small company and does not have a 401k plan. For 2021, can I also contribute $6,000 to an IRA or because I maxed out my 401k for this year already, am I not allowed to also do the IRA? I am 35 years old. 

[WendyS]

Hi Danarand1,

 First, I just want to say congratulations on the new job!!

It is possible to be able to contribute to both a 401k plan and an IRA in the same year.  However, your individual circumstances may limit or disallow any deduction for the IRA contribution.

Since you had an employer with a 401k plan during 2021, you must abide by the 2021 IRA deductions limits with regarding to the modified AGI since you (or spouse) were covered by a retirement plan at work during the same tax year.

In order to receive the full deduction for IRA contribution in 2021 while having a retirement plan at work, your MAGI must be $66,000 or less if you file single or head of household. There is a partial deduction up to $76,000.  At $76,000 you will receive no deduction for the IRA contribution.  In this circumstance, Married filing jointly filers get a full deduction with a $105,000 MAGI and is completely phased out at $125,000.

You can read more about the income limitations of IRA contributions when you have a retirement plan at work on the IRS website at: https://www.irs.gov/retirement-plans/2021-ira-deduction-limits-effect-of-modified-agi-on-deduction-i...

For even more information, please see publication 590-A.   At this time, the link is for 2020 and has not been updated with the 2021 limitations referenced above. https://www.irs.gov/publications/p590a

[AdamNe]

Hello @Danarand1 !

Thanks for the question. 

The answer is yes AND possibly no. 

You are definitely allowed to contribute the $6,000 into a traditional IRA (or Roth IRA, if you fall within the income limits), but because one of your employers in 2021 did have a retirement plan available for you, you may not be able to take the deduction, or the full deduction. Here is an IRS link that explains the income limits for claiming a deduction on your IRA contributions for 2021 when you were covered by a retirement plan at work. *Note, there are slightly different rules for each spouse if you are married and one spouse is covered, but the other isn't. 

 https://www.irs.gov/retirement-plans/2021-ira-deduction-limits-effect-of-modified-agi-on-deduction-i...

Hopefully that answers your question and gives you some of the tools you need to make your retirement saving choices!