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🏖️ Retirement & Free Money · Lesson 7 of 10 · 8 min

Use Both: 401(k) + IRA

🤝 Quick quiz: can you max out your 401(k) AND fund an IRA in the same year — or do you have to pick one? Plenty of people assume it's one or the other and leave a whole second tax shelter empty. Here's the real answer.

💡 Key idea

401(k) and IRA aren't either/or — separate limits, use both. Get the full employer match first, then an IRA for more choices, then max the 401(k).

🧠 Why it matters

A 401(k) and an IRA aren't an either/or choice — you can contribute to BOTH in the same year, and the IRS sets SEPARATE limits for each, so maxing your 401(k) doesn't reduce what you can put in an IRA. The smart playbook: FIRST, contribute to your 401(k) at least enough to grab the full employer MATCH — that's free money. THEN consider an IRA, which usually offers far more investment choices and control than a workplace plan. Still have money left? Go back and max the 401(k). A traditional IRA's tax deduction can phase out at higher incomes if you're covered by a work plan, and Roth IRAs have income limits — but most people can use some combination. (Exact dollar limits change every year — check the current IRS numbers.)

🌍 In the real world

💡 Two people earn the same and both save 'in their 401(k).' One ALSO opens an IRA and contributes there too — same income, but thousands more each year growing tax-advantaged. Over decades, that 'and' instead of 'or' can mean a meaningfully bigger retirement.

📌 Takeaways

  • You can contribute to both a 401(k) and an IRA — limits are separate
  • Order: full employer match → IRA (more choices) → max the 401(k)
  • Roth IRAs have income limits; exact dollar limits change yearly

📖 Terms in this lesson

Contribution limit: The most you can put into a retirement account in one year; it changes with inflation.

✅ Test yourself

Can you contribute to both a 401(k) and an IRA in the same year?
  1. No, pick one
  2. Yes — they have separate contribution limits
  3. Only if self-employed
  4. Only after age 50

Answer: B · Yes — they have separate contribution limits

The IRS sets separate limits; maxing one doesn't reduce what you can add to the other.

What's the smart FIRST priority when funding retirement accounts?
  1. Max the IRA
  2. Contribute enough to your 401(k) to get the full employer match
  3. Buy crypto
  4. Open five accounts

Answer: B · Contribute enough to your 401(k) to get the full employer match

The employer match is free money — grab the full match before anything else.

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