People frequently wonder, “Can I contribute to both a 401k and Roth IRA?”

That’s a good question and it deserves some attention.  We recently discussed the contribution limits for 401k plans.  While the caps may be a lofty goal for some of us, others just won’t find them high enough to handle the level of contribution they’d like to make.

For some of those people, there may be an alternative.  Under the right set of circumstances, it is possible to contribute to both accounts.  If you’ve got more to invest than your 401k will allow and you qualify for a Roth IRA, you certainly can contribute to both accounts.

The trick is qualifying for the Roth IRA.  In order to open a Roth IRA, you need to have earned income–at the same time, however, your income must fall under certain limits.  Plus, the amount you’re allowed to contribute will be based on your income.  If you earn too much, you can’t fund an IRA.

You’re probably seeing why answering “can I contribute to both a 401k and Roth IRA” is sticky. It is possible.  However, it will require a very specific set of circumstances.  You’ll need to make enough that you’re maxing out your 401k while not making too much to qualify for the Roth.  That’s a situation that’s not all that common and is even more rarely acted upon when it does occur.

However, it is possible.  It may also be a pretty good idea.

William Perez outlines four reasons to take advantage of both accounts, if you can.

First, and most obviously, it gives you a chance to save more money with tax benefits than you otherwise could.

Second, your 401k plan may not allow you to invest your money where you’d like.  You may have bond, CDs or mutual funds you’d like to purchase that aren’t part of your existing plan.  You can sink your money into those options via the Roth IRA.

Third, Roth’s offer some additional flexibility in terms of retirement planning.  Many people may find it valuable to have both a 401k and a Roth IRA when planning their golden years.

Fourth, you never can tell what will happen with tax rates in the future.  Socking away that extra money now–in a tax-deferred account–may be a good idea.

I’d add a fifth reason to the list:  You never know what’s gonna happen, so you might as well save more money rather than less.  Considering the tax perks of a Roth IRA, you might as well put the money aside if you can.  As long as the contributions aren’t stifling your ability to live comfortably, there’s no reason not to do it.

BestIRARescue has an interesting rundown of a hypothetical person who  qualifies to contribute to both accounts.  Their fictional Michelle does much better for herself in the long run by contributing to both.  They conclude:

Each retirement plan has its pros and cons. As long as Michelle is financially able to contribute, she can contribute to both a 401(k) and a Roth IRA. Both of these accounts are critical to the proper planning for retirement. Again, it is never too late to begin saving. Michelle has realized the importance of retirement planning and savings and she knows that the more she saves now, the more she will have available when she retires. IRA and retirement plan investing are very important tools. As long as Michelle continues to be able to contribute to more than one type of retirement account, she should. It may seem like a long way off, but retirement comes quickly, and the better she prepares and saves now, the better her financial situation will be later in life.

Based on that example, Michelle isn’t wondering, “Can I contribute to both a 401k and Roth IRA?”–she’s happy doing it!