How to Balance a 401k and IRA

If you invest in a 401k, IRA or other type of retirement account, you are making a sound financial decision for your future. However, if you have both a 401k and IRA, you need to know how to balance them correctly. Here are a few things to consider when working with both a 401k and IRA. 

Max Out Your 401k

In most cases, it is best to max out your yearly contribution to your 401k. With a 401k, you can contribute up to $16,500 per year. With an IRA, you can only contribute $5000 per year. Since many employers offer contributions, up to a certain percentage, of your contribution to the 401k, you should invest in a 401k before anything else. Otherwise, you may be leaving retirement money on the table.

Income Considerations

If you contribute to a 401k, you may lose the ability to deduct your contribution to your IRA from your taxes, depending on how much money you make. You can contribute $16,500 to your 401k and $5000 to your IRA. However, there is a chance that you will not be able to take advantage of contributing pretax money with the IRA.

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