Understanding How Multiple Retirement Plans Work
If you’re a business owner, self-employed professional, or someone with multiple income streams, you’ve probably wondered: Can I contribute to more than one retirement plan at the same time? The short answer is yes—but with important caveats.
Many high earners strategically use multiple retirement accounts to maximize their tax-advantaged savings. However, the IRS has specific rules about which plans can work together and which ones share contribution limits. Understanding these distinctions is crucial to avoiding costly mistakes and optimizing your retirement strategy.
This guide will walk you through which retirement plans you can combine, which ones you can’t, and how to structure your accounts for maximum benefit without running afoul of IRS regulations.
The Basics: How Contribution Limits and Plan Types Interact
The IRS sets annual contribution limits for retirement accounts, but these limits don’t always double just because you have multiple plans. Whether you can maximize contributions across different accounts depends largely on the type of plan you’re using and the source of the income funding those plans.
Here are the main categories you need to understand:
Defined Contribution Plans: These include 401(k)s, SEP IRAs, and SIMPLE IRAs. Your contributions (and your employer’s) go into an individual account, and your retirement benefit depends on how much you’ve contributed and how your investments perform.
Defined Benefit Plans: Traditional pensions and cash balance plans fall into this category. These plans promise a specific benefit at retirement, calculated using a formula based on factors like salary, years of service, and age.
Individual Retirement Accounts (IRAs): Traditional and Roth IRAs are personal retirement accounts with their own separate contribution limits and rules.
The key principle: Some plans have completely separate limits, while others share contribution space—especially when they’re sponsored by the same employer or funded by the same source of income.
Compatible Combinations: What You Can Do
401(k) + IRA
This is one of the most common and straightforward combinations. You can contribute the maximum to your employer’s 401(k) plan ($23,500 in 2025, plus $7,500 catch-up if you’re 50 or older) and still make separate contributions to a Traditional or Roth IRA ($7,000 in 2025, plus $1,000 catch-up).
However, if you’re covered by a workplace retirement plan, your ability to deduct Traditional IRA contributions may be limited based on your income ($77,000–$87,000 for single filers and $123,000–$143,000 for married couples filing jointly in 2025). Roth IRA contributions also phase out at higher income levels ($146,000–$161,000 for single filers and $230,000–$240,000 for married couples).
Solo 401(k) + Defined Benefit Plan
This powerful combination is popular among high-earning self-employed individuals and business owners without employees. The Solo 401(k) allows you to make elective deferrals as an employee (up to $23,500 in 2025) plus profit-sharing contributions as the employer (up to 25% of compensation). The total contribution limit is $70,000 in 2025 ($77,500 with catch-up contributions).
Meanwhile, the defined benefit plan has separate contribution limits that can allow for significantly higher tax-deductible contributions—sometimes exceeding $200,000 annually, depending on age and income.
These plans work together because they serve different purposes and are governed by different IRS regulations. This combination is particularly advantageous for individuals in their 40s, 50s, and early 60s who have high, stable income and want to accelerate their retirement savings.
Defined Benefit Plan + IRA
You can maintain both a defined benefit pension plan and an IRA. However, if you’re an active participant in the pension plan, your ability to deduct Traditional IRA contributions may be reduced or eliminated based on your income. Your participation doesn’t affect Roth IRA eligibility—only income limits matter there.
401(k) + Health Savings Account (HSA)
While not technically a retirement plan, an HSA is an often-overlooked retirement savings vehicle. If you have a high-deductible health plan, you can contribute to an HSA ($4,300 for individuals or $8,550 for families in 2025) while also maxing out your 401(k).
HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After age 65, you can withdraw HSA funds for any purpose without penalty (though non-medical withdrawals are taxed like Traditional IRA withdrawals).
Multiple Employer Plans
If you work for two different, unrelated employers, you can participate in both employers’ 401(k) plans. However, your total employee elective deferrals across both plans cannot exceed the annual limit ($23,500 in 2025). Employer contributions from each company don’t count toward this limit, potentially allowing you to exceed the standard $70,000 combined limit.
Non-Compatible or Restricted Combinations: What You Can’t Do
Solo 401(k) + SEP IRA
You generally cannot benefit from using both plans simultaneously for the same self-employment income. Both plans share the same contribution limit structure, so using both doesn’t provide additional contribution space—you’re simply splitting the same allowable contribution between two accounts.
Choose a Solo 401(k) if you want employee deferral options, loan provisions, or Roth contributions. Choose a SEP IRA if you want simplicity and the ability to establish a plan late in the year (up until your tax filing deadline).
Two 401(k)s from the Same Employer
You cannot open two separate 401(k) plans under the same business to double your contribution limit. The IRS treats all 401(k)s sponsored by the same employer as a single plan for contribution purposes.
SIMPLE IRA + Another Employer Plan
IRS rules explicitly prohibit employers who sponsor a SIMPLE IRA from maintaining any other retirement plan during the same calendar year. This means you can’t offer both a SIMPLE IRA and a 401(k) or SEP IRA simultaneously.
If you want to switch from a SIMPLE IRA to a different type of plan, you must wait until the following calendar year.
Multiple Employer Plans with Shared Ownership
If you own multiple businesses, controlled group and affiliated service group rules may require you to aggregate your companies for retirement plan purposes. This means:
- Contribution limits apply across all businesses combined
- If one business offers a retirement plan, you may need to allow employees from all businesses to participate
- You can’t maximize contributions separately for each business
These rules are complex and depend on ownership percentages and business relationships. Professional guidance is essential if you have multiple businesses.
Strategy Spotlight: How to Layer Plans Effectively
For Business Owners: The combination of a defined benefit plan and a Solo 401(k) can allow six-figure annual contributions for high earners. For example, a 52-year-old with $300,000 in net self-employment income could contribute $30,500 to a Solo 401(k) and $175,000+ to a cash balance plan—over $200,000 in tax-deductible retirement savings annually.
For Employees with Side Income: Keep contributing to your employer’s 401(k) from your day job, then open a Solo 401(k) for your side business income. Remember that your employee deferrals across all 401(k) plans cannot exceed $23,500 (or $31,000 with catch-up), but you can still make employer profit-sharing contributions to the Solo 401(k) based on your side business earnings.
For Couples: Each spouse can maintain their own retirement plan portfolio. If both spouses are self-employed, each can have a Solo 401(k) and potentially a defined benefit plan, effectively multiplying household retirement savings potential.
Real-World Scenarios
Scenario 1: Full-Time Employee with a Side Hustle
Sarah works full-time and contributes $23,500 to her employer’s 401(k). She also runs a freelance consulting business that generates $40,000 annually in net income. She opens a Solo 401(k) for her consulting business. Since her employee deferrals are maxed out from her day job, she focuses on employer contributions—approximately $8,000 (20% of net self-employment income). Total annual retirement savings: $34,000 (including her employer match).
Scenario 2: High-Income Business Owner
Michael, 52, owns a consulting firm with no employees and earns $350,000 annually. He maintains both a Solo 401(k) and a cash balance defined benefit plan. His annual contributions: $31,000 to the Solo 401(k) (employee deferrals plus catch-up), $39,000 in profit-sharing, and $165,000 to the cash balance plan. Total: $235,000 in tax-deductible retirement contributions, saving him approximately $100,000 in taxes annually.
Scenario 3: Small Business with Employees
Jennifer owns a marketing agency with five employees and wants to offer retirement benefits. She establishes a Safe Harbor 401(k) with a 3% employer contribution. This allows her to defer up to $23,500 annually while providing a valuable benefit to her team. Though more expensive than a SIMPLE or SEP IRA, the 401(k) provides maximum flexibility and contribution potential.
Mistakes to Avoid
- Exceeding Combined Contribution Limits: Your total employee deferrals across all 401(k) plans cannot exceed $23,500 ($31,000 with catch-up). Excess contributions must be withdrawn by your tax filing deadline to avoid being taxed twice.
- Poor Coordination Between Plans: Failing to properly calculate employer contributions across multiple plans can result in excess contributions and penalties. Professional administration is essential for complex combinations.
- Setting Up Incompatible Plans: Establishing a SIMPLE IRA and then adding a 401(k) in the same year, or running both a SEP IRA and Solo 401(k) for the same income, violates IRS rules.
- Ignoring Aggregation Rules: Business owners with multiple companies may be required to treat them as a single employer, complicating contributions and employee coverage requirements.
- Not Considering Cash Flow: Strategies like the defined benefit + Solo 401(k) combination require substantial annual contributions. Ensure your income is consistent enough to sustain these commitments.
Consult Before You Combine
The IRS rules governing retirement plans are complex and highly interrelated. Factors like your age, income level, business structure, employee count, and long-term goals all influence which combination of plans makes sense for you.
Before establishing multiple retirement accounts, work with a qualified financial advisor, CPA, or retirement plan specialist. These professionals can help you:
- Calculate accurate contribution limits across multiple plans
- Ensure compliance with IRS regulations
- Structure your plans for maximum tax benefits
- Avoid costly mistakes and penalties
The upfront cost of professional advice is minimal compared to the potential savings and peace of mind you’ll gain from a properly structured retirement strategy.
Conclusion
You can mix and match certain retirement accounts—but only if they’re designed to complement, not overlap. A 401(k) and IRA work beautifully together. A Solo 401(k) and defined benefit plan can supercharge savings for high earners. But trying to use both a Solo 401(k) and SEP IRA for the same income provides no benefit, and offering both a SIMPLE IRA and another employer plan violates IRS rules.
Understanding these distinctions allows you to maximize your tax-advantaged retirement savings legally and strategically. By combining compatible plans, you can dramatically increase your annual savings, significantly reduce your tax liability, and build substantial retirement wealth more quickly.
Before you open another retirement account, make sure your strategy fits IRS rules and your long-term goals. A professional advisor can help you design the perfect mix for your unique situation—and help you avoid expensive mistakes along the way.
