The Benefits of Having a 401(k) and a Self-Directed IRA

Can I have a 401k and IRA
Estimated reading time: 3 minutes(Last Updated On: February 24, 2022)

For those who may still participate in a company 401(k) plan, you might be wondering if it is possible to invest in a Self-Directed IRA and a 401(k) plan at the same time. The short answer is yes, and it could be a smart financial strategy for those who qualify. Having a 401(k) plan at work doesn’t affect your eligibility to have a Self-Directed IRA. In fact, you can save more by contributing the maximum amount to both accounts.

While 401(k)s and Self-Directed IRAs can be used for both retirement investing, each account has unique differences. Understanding the benefits and drawbacks for both will better help you decide which account – or both – can help you reach your financial goals.

Having a 401(k)

Taking full advantage of your 401(k) benefits is one reason you might consider contributing to both plans. Most employers offer a 401k to help their employees save for retirement, allowing for moderate to high contribution limits. For 2022, the total amount of income you can contribute to a 401(k) is $20,500. Typically, the company will match some or all funds an employee contributes. You could be leaving free money available by not contributing at least enough to receive the full employer match.

Investment options can sometimes be limited even with a company 401(k) plan, which could be another reason why someone would choose to have both accounts. While many employers are starting to offer more investment choices, some 401(k) plans still have a fixed selection. A Self-Directed IRA allows for more diversification.


Having a Self-Directed IRA

The biggest benefit of a Self-Directed IRA is that the account holder can chose from a multitude of investments, more than those that are only publicly traded. Private investment options can include real estate, promissory notes, cryptocurrency, private equity, LLCs, tax liens, oil and gas, land, and much more. A wider pool of investment choices can help make finding an affordable, high-performing investment easier.

Self-Directed IRA contributions have a smaller allowable maximum, which could be seen as a drawback. For 2022, the maximum contribution for Traditional and Roth IRAs is $6,000 (with an extra $1,000 available for catch-up). However, your Traditional IRA contributions have the potential to be tax-deducible if you meet the modified adjusted gross income (MAGI) requirements! Your MAGI could limit your Roth IRA contributions, so it’s important to consult a tax advisor to see how much you may be allowed based on your filing status.


401(k) vs SDIRA..which account is the Best?

When deciding if you should invest in a 401(k), a Self-Directed IRA or both, remember that each account has pros and cons to offer. It’s hard to argue if one account is better than the other; it really depends on your situation and retirement goals. More importantly, you should always know that the ability to invest with both plans is out there if you want the option! For more information about which accounts can help you reach your goals, ask an IRA Specialist for more education. Our staff is always available to answer your questions. Simply schedule your free one-on-one consultation.


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