Can you have both a 401 and an IRA?

Question

If you max out the 401, can you get additional tax benefits if you open an IRA. How do you lower your income to avoid paying taxes?

Answer 1

You can only have a deductible IRA (the kind that lowers your taxes) if your income is below a certain cutoff.

Check IRS pub 590 for more details.

Note, Badger's answer is off.  By virtue of having a 401K plan at work, you are "covered."

If single, covered and your AGI is less than $52000, you can take a full deduction for an IRA.  There is no test to see if you already put too much in via the 401K.  If your income is above $62,000, no deduction.  In between, it's partial.

Answer 2

You can have a 401k and a traditional IRA. However, you will only be able to claim a partial IRA contribution if your 401k contribution is less than $4000.00 . e.g If your 401k contribution is only $3500 then you can apply $500.00 of a traditional IRA contribution on your tax filing. If your 401k is being maxed out at present, then you might consider a ROTH IRA. Your contributions are all taxed but the growth of the principal is tax exempt as long as you don't cash it in prior to age 59 1/2.

**** vb may not agree but I am speaking from experience as a result of an audit. I used the same approach to lower my tax liability and the IRS agreed with me and with what the IRS rules were.

******Excerpt from IRS PUB590 which "does" allow for a partial IRA deduction if "covered" by an employers plan:

Limit if Covered by Employer Plan

As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. Your deduction is also affected by how much income you had and by your filing status. Your deduction may also be affected by social security benefits you received.

Reduced or no deduction.   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status.

  Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These amounts vary depending on your filing status.