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IRA Financial Blog

Maximizing the IRA & 401(k) Relationship – Episode 442

Adam Talks

On this episode of Adam Talks, tax attorney and IRA Financial’s founder, Adam Bergman, Esq., discusses how to best maximize the two most popular retirement saving vehicles: the IRA and 401(k).

Maximizing the IRA & 401(k) Relationship

This episode of Adam Talks focuses on maximizing the benefits of having both an IRA and a 401(k) in the same year. Adam Bergman, founder of IRA Financial, shares a personal anecdote about meeting two young women at an airport, one of whom was unfamiliar with retirement savings. This conversation inspired him to create the podcast to demystify the basics of setting up and managing IRAs and 401(k) plans.

Bergman explains the fundamentals of 401(k) plans, noting that any business can set one up, including sole proprietors and corporations. He highlights the significant contribution limits for 401(k) plans compared to IRAs, emphasizing the advantages of self-employment in maximizing retirement savings. He also mentions that if one has a side gig, they can set up a Solo 401(k) even if they are employed full-time elsewhere.

For those with access to a 401(k) at work, Bergman advises maximizing contributions to take full advantage of tax deductions and employer matches. He underscores the importance of saving in a 401(k) due to the tax benefits and the potential for significant tax-free growth over time. He shares that companies often offer matching contributions and that setting up a 401(k) can help businesses attract and retain employees.

Turning to IRAs, Bergman outlines the conditions under which one can contribute to a traditional IRA, especially when they have access to a 401(k) at work. He explains the income limits for making pretax IRA contributions and the advantages of Roth IRAs. Roth IRAs allow for tax-free withdrawals in retirement, provided certain conditions are met, making them a valuable option for long-term savings.

Bergman introduces the concept of the “Backdoor Roth IRA,” a strategy that allows high-income earners to contribute to a Roth IRA despite income limitations. He provides detailed income thresholds for both traditional and Roth IRAs, helping listeners understand when and how they can contribute to these accounts. He emphasizes the importance of saving as much as possible in both 401(k) and IRA accounts to benefit from compounded returns over time.

In conclusion, Bergman reassures listeners that becoming an “IRA millionaire” is achievable with consistent contributions and prudent investment strategies. He encourages young people to start saving early to maximize the benefits of compounded returns and long-term growth. Bergman closes by reinforcing the simplicity and importance of starting a retirement savings plan and thanking his listeners for their time.

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