Income Restrictions

• Your ability to contribute to both a 401(k) and an IRA depends largely on your income. If you have a low to moderate income, you are free to invest as much of that income as you want into both an employer-sponsored plan like a 401(k) and a traditional or Roth IRA. However, earners in the higher income brackets face restrictions on the amount they can put into their IRA. The limits for traditional IRAs are lower, but the IRS also imposes income limits on contributions to Roth IRAs. Always check the current income limit guidelines before making your annual IRA contribution. For 2011, single taxpayers who earn more than $122,,000 cannot contribute to a Roth, while those with incomes between $107,000 and $122,000 can only make a partial contribution. Married taxpayers cannot contribute to a Roth if their income is more than $179,000. Those taxpayers can make a partial contribution if their income is between $169,000 and $179,000.
  
  

Contribution Limits

• Both IRA accounts and 401(k) plans have relatively high contribution limits, so even if you are eligible to do so you might not be able to max out both plans. For 2011, you can contribute up to $16,500 to your 401(k) plan, plus an extra $5,500 if you are 50 years of age or older. You can also contribute up to $5,000 to a traditional or Roth IRA account, plus an extra $1,000 if you are 50 years of age or older, as long as you meet the income guidelines set by the IRS.
  
  

Investment Strategy

• One strategy you can use is to put enough into your 401(k) plan to get the full company match. After you have that set up, focus on making the maximum contribution to your IRA account, striving to get that contribution in as early in the year as possible. Then if you find you still have money to invest, you can raise the contribution percentage for your 401(k) plan for the rest of the year and put away as much as you can in that account as well.
  
  

Tax Planning

• If you are eligible to contribute to both a 401(k) and an IRA, it is a good idea to do some advance tax planning to see which combination of investments gives you the biggest tax advantage, both in the short-term and over the long-run. If you are under the income guidelines cited above, i.e. less than $107,000 for a single filer or $169,000 for a married couple, you can contribute the full $16,500 or $22,000 to your 401(k), plus the full $5,000 or $6,000 to a Roth IRA. It is a good idea to run those numbers through your tax preparation software to see how those contributions will impact your taxes at the end of the year.