Can I Contribute to an IRA if I Have a 401(k) That I Don't Use?

If your employer simply offers a 401(k) plan -- that is, you don't contribute and your employer doesn't contribute anything for you -- this does not affect your ability to contribute to an individual retirement plan. However, even if you haven't contributed, it's your employer will be generous and contribute on your behalf, which could affect whether you're allowed to take a deduction for your traditional IRA contributions.

Standard Contribution Requirements

Whether or not your employer offers you a 401(k) plan, the ordinary requirements to contribute to either a traditional IRA or Roth IRA remain the same. To be eligible to contribute to either type of IRA, you must have compensation. For traditional IRAs, you have to be under 70 1/2 years old. For Roth IRAs, your age does not matter, but your modified adjusted gross income does: MAGI limits vary depending on your filing status.

Traditional IRA Deduction

Though the eligibility rules for contributing to an IRA don't change when your employer offers a 401(k) plan, if you're deemed to be covered by the plan, you might not be able to deduct your traditional IRA contribution. Sure, you can still make a full contribution, but the money isn't deductible on your taxes. However, it will still grow tax-free in your account and when you take distributions, you'll get a portion out tax-free. Roth IRA contributions aren't affected in this way, because they're always nondeductible.

What Constitutes Participation

Just because your employer offers a retirement plan doesn't mean you're counted as a participant. For 401(k) plans, you're a participant if either you or your employer contributes on your behalf for the plan year ending with or within the tax year. For example, if you don't put any money in your 401(k) plan, but your employer makes a contribution on your behalf, you're considered to be covered by the plan.

MAGI Limits

If you are covered by the 401(k) plan, you can still contribute to a traditional IRA, but you might not be able to deduct your contribution if your modified adjusted gross income is too high. In 2013, if you're single and covered, your deduction limit starts falling at $59,000 and phases out completely at $69,000. If you're married filing jointly and you're covered, the deduction starts dropping at $95,000 and disappears completely if your MAGI exceeds $115,000. If only your spouse is covered, you can't deduct the full contribution if your MAGI exceeds $178,000 and you can't deduct anything if it exceeds $188,000.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."