Maximizing Your Retirement Savings: Using a Traditional IRA or Roth IRA Alongside Your 401(k) in 2025

If you're an employee with access to a 401(k) at work, you're already taking important steps toward securing your retirement. But did you know that adding a Traditional IRA or Roth IRA to your savings strategy can give you even more benefits? In fact, contributing to both a 401(k) and an IRA could significantly boost your retirement savings and help diversify your tax benefits. Here’s how you can make the most of your retirement savings in 2025 by using both types of IRAs alongside your 401(k).

What is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged savings account designed to help you maximize your retirement savings. The two most popular types are the Traditional IRA and the Roth IRA, each offering unique tax advantages. Even if you already participate in a 401(k), contributing to an IRA can provide additional flexibility and benefits, such as tax diversification and more savings options.

Traditional IRA vs. Roth IRA: Key Differences for 2025

While both types of IRAs offer tax benefits, they work differently. Here’s a breakdown of the key differences for 2025:

Traditional IRA:

• Tax Deduction Now, Tax Later: Contributions to a Traditional IRA may be deductible on your tax return for the year you contribute, which reduces your taxable income for that year. However, when you withdraw funds in retirement, they will be taxed as ordinary income.

  
  

• Taxes Upon Withdrawal: Traditional IRA withdrawals are taxed at your ordinary income tax rate when you retire. The idea is that you’ll be in a lower tax bracket in retirement, meaning you’ll pay less tax on the money you withdraw.

  
  

• Contribution Limits: In 2025, the contribution limit for a Traditional IRA is $7,000 per year, or $8,000 if you’re 50 or older (catch-up contribution).

  
  

• Required Minimum Distributions (RMDs): Once you reach age 73, you must begin taking Required Minimum Distributions (RMDs) from your Traditional IRA, which are subject to income tax.

  
  

Roth IRA:

• Tax Benefit Later: Roth IRA contributions are made with after-tax dollars, meaning you don’t receive an immediate tax deduction. However, when you withdraw money in retirement, both your contributions and earnings are tax-free, provided you meet certain requirements.

  
  

• Tax-Free Withdrawals: Once you reach age 59½ and have had the Roth IRA for at least five years, withdrawals are entirely tax-free. This can be a powerful tool if you expect to be in a higher tax bracket in retirement.

  
  

• Contribution Limits: In 2025, the contribution limit for a Roth IRA is also $7,000, or $8,000 if you’re 50 or older.

  
  

• Income Limits: Roth IRAs have income limits for eligibility. In 2025, if your modified adjusted gross income (MAGI) exceeds $165,000 for single filers or $246,000 for married couples filing jointly, you’re not eligible to contribute directly to a Roth IRA.

  
  

Maximizing Your Retirement Savings: Using a Traditional IRA or Roth IRA Alongside Your 401(k) in 2025

Having access to a 401(k) at work is a great first step toward retirement savings. But using an IRA in addition to your 401(k) can provide even more opportunities to maximize your retirement savings. Here are a few reasons why you might consider contributing to both in 2025:

1. Boost Your Savings: The 2025 contribution limit for a 401(k) is $23,500, or $31,000 if you’re 50 or older. Even if you're contributing the maximum to your 401(k), you can still contribute up to $7,000 (or $8,000 if you're 50 or older) to an IRA. This means you can increase your retirement savings beyond the limits of your 401(k).

   
   

2. Tax Diversification: Contributing to both a 401(k) and an IRA allows you to enjoy tax diversification. If you contribute to a Traditional IRA, you’ll reduce your taxable income in the current year, but you’ll pay taxes on withdrawals in retirement. If you contribute to a Roth IRA, your withdrawals will be tax-free in retirement, which can be particularly valuable if you expect to be in a higher tax bracket when you retire. Having both options gives you flexibility when it comes to managing your taxes in retirement.

   
   

3. Employer Match: If your employer offers a 401(k) match, it’s usually a good idea to contribute at least enough to take full advantage of that match. Once you’ve received the full match, contributing to an IRA can allow you to continue saving with additional tax benefits.

   
   

4. Catch-Up Contributions: If you’re 50 or older, you can take advantage of catch-up contributions. For 2025, the catch-up contribution limit for a 401(k) is $7,500, and for IRAs, it's $1,000. These additional contributions allow you to accelerate your retirement savings as you approach retirement age.

   
   

5. Roth IRA for Tax-Free Growth: If you’re eligible to contribute to a Roth IRA, it can be a great option for tax-free growth. Roth IRAs don’t have Required Minimum Distributions (RMDs), which means you don’t have to withdraw money if you don’t need it. This makes Roth IRAs an excellent tool for estate planning and for ensuring your money grows tax-free for as long as possible.

   
   

IRA Eligibility and Income Limits in 2025

It’s important to note that your eligibility to contribute to an IRA can be affected by your income, particularly when it comes to Roth IRAs.

• Traditional IRA: You can contribute to a Traditional IRA regardless of your income, but if you or your spouse are covered by a retirement plan at work (such as a 401(k)), the ability to deduct your contributions may be limited based on your income. In 2025, if you're single and your modified adjusted gross income (MAGI) is over $79,000, or if you’re married filing jointly and your MAGI exceeds $126,000, your deduction may be reduced or eliminated.

  
  

• Roth IRA: Roth IRAs have stricter income limits. In 2025, you can contribute to a Roth IRA if your MAGI is below $165,000 (single) or $246,000 (married filing jointly). If your income exceeds these thresholds, you are ineligible to contribute directly to a Roth IRA, but there are strategies like a backdoor Roth IRA that may allow you to contribute indirectly.

  
  

Final Thoughts: Which IRA Should You Choose?

Even if you have a 401(k), adding a Traditional IRA or Roth IRA to your savings strategy can provide more flexibility, tax benefits, and opportunities for growth. Here’s how to choose:

• Traditional IRA: If you want to lower your taxable income now and expect to be in a lower tax bracket during retirement, a Traditional IRA may be a good choice. It offers an upfront tax break, and the money grows tax-deferred until retirement.

  
  

• Roth IRA: If you anticipate being in a higher tax bracket in retirement or want to enjoy tax-free withdrawals in retirement, a Roth IRA could be ideal. With no Required Minimum Distributions (RMDs) and tax-free growth, it’s an excellent long-term savings tool.

  
  

By combining a 401(k) with a Traditional IRA or Roth IRA, you can take full advantage of tax-deferred and tax-free growth, reduce your current taxable income, and maximize your retirement savings. The key is to start contributing early, take advantage of catch-up contributions if you're 50 or older, and ensure your strategy aligns with your long-term retirement goals.

The information provided in this blog post is intended for general informational purposes only and should not be construed as legal or tax advice. While every effort has been made to ensure the accuracy of the information, tax laws and regulations are subject to change, and individual circumstances may vary. For personalized advice and to ensure compliance with current tax laws, it is strongly recommended that you consult with a qualified tax professional, financial advisor, or legal counsel. The author and publisher of this blog assume no responsibility for any errors or omissions, or for any actions taken based on the information contained herein.