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I have a 401k and I keep reading about people having both a 401k and an IRA. What are the benefits of having both?

I actually have 3 things: A 401k, a rollover IRA and a Roth IRA.

I max out my 401k contributions, so I also contribute to my Roth IRA. I could contribute to a traditional IRA instead of the Roth, but I couldn't deduct the contributions.

I also have a rollover IRA, which has been funded by dollars rolled over from the 401k of my old employer when I left. I don't contribute to the rollover IRA, but it allows me to keep deferring the tax bill on the 401k dollars.

The rule of thumb is that you should always contribute to your 401k to get all available matching funds. After that, some people perfer to direct their savings into an IRA, either traditional or Roth, to invest in holdings different from those in the 401k. However, if you have sufficient funds to max out both your 401k and IRA contribution, it makes sense to do so.

JDOyster
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