Can I Contribute to a 401(k) & a SIMPLE IRA in the Same Year?

Many employers offer their employees retirement plans as a workplace benefit. The type of plan offered by the employer is their choice. Employers have the option of choosing from several alternatives.

401(k)s allow employees and employers to make pre-tax contributions to the employee’s retirement plan. There is a limit to the amount of money you and your employer can contribute to your plan each year. Limits are adjusted annually.

Savings Incentive Match Plans for Employees individual retirement account plans, or SIMPLE IRAs, also allow employers and their employees to make pre-tax contributions that don’t exceed the annual limit. The difference is that only companies with ​100 or fewer​ employees can offer these plans.

Can you contribute to both an SIMPLE IRA and a 401(k)? According to the IRS, it may be possible for you to contribute to both plans in a single year, but you cannot exceed joint contribution limits. In addition, it's rare to do so since employers don’t have the option of offering more than one plan to employees, with the exception of employees who are covered under a collective bargaining agreement.

There are certain circumstances where an employee may contribute to two employer-sponsored plans in one year. They include:

• Employee changes jobs during the year
• Employer replaces one plan with another during the year
• Employee works for more than one unrelated employer during the year
• Employees who contribute to more than one plan during a year are not allowed to exceed the IRS contribution limits for 401(k) plans

For 2022, according to the IRS, the contribution limit is ​$20,500​, but you have to keep in mind that employers can place their own limits on how much employees invest in an employer-run 401(k) plan. Employees who are 50 years of age or older can contribute an additional ​$6,500​ catch-up amount, bringing their limit to ​$27,000​.

In 2022, the combined employee/employer contribution limit increased from ​$58,000​ to ​$61,000​ for employees under 50. For employees 50 or older, the combined contribution limit increased from ​$64,500​ to ​$67,500​.

Total contributions can’t exceed ​100 percent​ of the employee’s annual earnings. In 2022, highly paid employees can only count the first ​$305,000​ of their income when calculating maximum contributions.

The 2022 maximum contribution an employee can make to a SIMPLE IRA is limited to ​$14,000​. Employees who are 50 or older in the 2022 calendar year can enjoy a catch-up contribution of ​$3,000​. In some cases, you can have two SIMPLE IRAs. Employers can make up to ​3 percent​ of their employees’ contributions or ​2 percent​ of their employees’ compensation up to ​$305,000​.

Employees belonging to both a 401(k) and a SIMPLE IRA in the same calendar year can contribute a maximum of ​$20,500​ (or ​$27,000​ for employees 50 years of age or older). If you contributed the maximum amount allowed into your SIMPLE IRA (​$14,000​ for those under 50 for 2022), the most you can contribute to your 401(k) in the same calendar year will be ​$6,500​.

That number increases by ​$3,000​ for employees 50 or older, but not all employers allow catch-up contributions. You can get around this by contributing the maximum 401(k) amount of ​$20,500​ for the year and since your employer does not allow catch-up contributions, you can contribute another ​$6,500​ to your SIMPLE IRA to bring your overall total contribution for the year to ​$27,000​.