Can you really own multiple retirement vehicles? If you’re actually trying to find answers to this classic question, then that’s a good thing for several reasons. First and foremost, it’s a sign that means that you’re actually thinking about the future, and who can fault you for that? The truth is that when you really need to make sure that you have things covered for you and your spouse when everything else is handled. In addition, it’s a good idea to think about multiple retirement vehicles because it’s a sign that you’re making more money than what you need to cover everyday life, and this is definitely a good thing as well. You just need to figure out what you’re trying to accomplish, and then see how to make it happen in a structured way.
So, to answer the question — yes, you can completely own multiple retirement vehicles. You can own a 401(k) account as well as an IRA account. What you cannot do is own multiple types of IRAs, or two different 401(k) s. If you want to move your 401(k) account from one job to another, you can do what’s called a rollover.
You will need to look at the restrictions for the 401(k) account as well as the IRA, which is something we’ll go into in just a moment. Let’s start with the 401(k).
In order to open a 401(k) account, you just file the right paperwork with your employer. You will need to either set up the account where they’ll deduct the monthly contribution you want, or you can have it deducted directly from your paycheck, which is the better approach. If you let it get into your personal bank account, you might be tempted to spend the money instead of contributing to your 401(k). There’s no income limit for the 401(k), which is why it’s such an interesting retirement vehicle for so many people. At the time of this writing, you can contribute up to $16,500 a year to your 401(k) — and your employer may match a certain percentage of your contribution, up to a certain amount. That’s essentially free money, which is why so many people tell you to go ahead and make the call to invest in a 401(k) account to begin with.
Now, on the other side you have the Roth IRA account, which is limited by income caps. If you’re a single filer with respect to income taxes, you can make up to $105,000 a year (modified adjusted gross income) to qualify for a full contribution — which is $5,000 at the time of this writing. You can make up to $120,000 for a partial contribution, which is $2,000 at the time of this writing. If you’re over 50, that number shoots up to $6,000 which is designed to help you “catch up” in terms of retirement savings.
Married filers that are filing jointly are allowed to make up to $167,000 to qualify for a full contribution, and $177,000 to qualify for a partial contribution. If you have more money to invest into your retirement, you’ll have to essentially go with a taxable account, or an annuity that is tax-deferred. Since you don’t know what type of taxes you’ll have to pay in retirement, you might want to have a mix of things that are tax-free in retirement, and tax-deferred. The old rules used to be if you were facing retirement, you wanted a lot of tax-deferred things because your tax bracket would be less. But what if you want to make a new business once you retire, or if you have rental income coming in? There’s no guarantee anymore that you’ll be in a lower tax bracket than you are now.
These are just a few things to think of as you consider multiple retirement vehicles. Not sure where to park your money even after you’ve chosen a retirement vehicle? That’s the next article — stay tuned!