You can contribute to both IRA and 401K plan at the same time under the condition that you are able to meet the requirement of the IRA you choose. In short, there are 3 types of IRA -- Tax-deductible IRA, Nondeductible IRA and Roth IRA.
Tax-deductible IRA reduces taxable income by accounting your contributions within a pre-determined limit. It is complex to understand the requirements and the terms and conditions clearly. Hence, you can contact an expert tax advisor if you want to contribute to this plan. The eligibility depends on a variety of factors which include total income, age, and whether you are covered by a 401K or any other retirement plan by your employer. The rules for contributing to both Tax-deductible IRA and 401K plan are pretty complex and confusing to understand especially in the case of individuals who are married.
Non-deductible IRA is the simplest option and individuals can contribute irrespective of age, income or coverage by some other retirement plan. The only restriction is that the person should earn income which is at least equal to the IRA contribution amount.
Roth IRA is a non-tax deductible contribution. However, the after-tax contributions are allowed to grow free of tax. The withdrawals are tax-free subject to certain rules. This IRA is not available for highly employed individuals. Single tax filers should have an annual gross income less than $120,000 and married people file less than $176,000 to avail this benefit.
For typical middle-class individuals, 401K combined with Roth-IRA is considered to be the most ideal strategy for savings.
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