Yes. You can contribute to a 401(k), as well as a traditional Roth IRA, if you have a pension. In fact, it’s probably in your best interest to have all of these accounts to reduce any potential risk associated with pensions.

As discussed several times above, pensions are offered by fewer companies these days. More concerning for the public sector is that funds may run dry.

Can You Have a Pension and 401(k) and IRA?

Additionally, retirement plans like a 401(k) come with the following perks:

Pensions and Social Security

Will a pension reduce your social security benefits? In most cases, the answer is no. Furthermore, you can still collect both.

“There is nothing that precludes you from getting both a pension and Social Security benefits,” explains the AARP. “But there are some types of pensions that can reduce Social Security payments.”

Let’s say that your pension is what Social Security calls “covered” employment. Because you have paid Social Security payroll taxes, it will not affect your benefits. “The vast majority of Americans work in jobs covered by Social Security.”

But what if you worked for and received a pension from a “non-covered” employer? That means that Social Security payroll taxes were not withheld. “Your benefits might be cut under a rule called the Windfall Elimination Provision (WEP),” explains the AARP.

“WEP applies primarily to federal workers hired before 1984 and employees of some state and local government agencies. (Employees of companies in other countries might also be affected.)” they add. “The formula for figuring the benefit cut is complicated, but the more time you spent in covered employment, the less the WEP reduction. There’s also a cap: Your Social Security retirement benefit can’t be cut by more than half of the amount of the non-covered pension, and it cannot be eliminated entirely.”

There’s also a similar rule known as the Government Pension Offset (GPO). It “reduces Social Security spousal or survivor benefits for spouses, widows, and widowers who also collect a non-covered pension from their government jobs,” states the AARP. “The reduction can be up to two-thirds of the government pension amount, and under this rule — unlike with the WEP — your spousal or survivor benefit could be zeroed out.”

Head over to The Social Security Administration for more details on the WEP and the GPO.

Alternatives to Pensions

We can’t stress this enough. When it comes to your retirement, you can’t afford to put all of your eggs into one basket. And this is definitely true when it comes to pensions.

While there are advantages to pensions plans, the truth of the matter is that they’re becoming less common. To protect your financial future then, you should consider a variety of retirement plans.

Make sure to consider plans that align with your retirement goals. 

You also should pay attention to the tax advantages, fees, withdrawal penalties, and how they can be accessed. After all, you don’t want your retirement funds to be so easily accessible that you’ll burn through them.

If you’re employed, then be on the lookout for plans that have matching contributions from your employer. But, if you’re self-employed for a small business owner, focus on savings options like a Simplified Employee Pension (SEP-IRA), real estate, and a Solo 401(k).

Without further ado, here are your best retirement plans to consider.

Defined Contribution Plans.

A defined-contribution (DC) plan is a retirement plan that was introduced in the early 1980s. It’s typically a tax-deferred plan, such as a 401(k). These plans allow you to contribute a fixed amount or a percentage of your paychecks to a retirement account.

The main advantage of a DC plan is that savings can be invested automatically by taking the money right out of your paycheck. You can also invest in high-return investments, like stocks. And, you don’t have to worry about paying taxes on the gains until you make a withdrawal.

However, there are penalties if you access the funds early. If you’re a teacher or work for a non-profit, you can opt for a 403(b) plan. There’s also the 457(b) plan for state and local government employees.

Just a final FYI — in 2020 and 2021, the contribution limit for each plan is $19,500 ($26,000 for those aged 50 and over).

IRA Plans

Created by the U.S. government, an individual retirement account (IRA) lets you save money for retirement in a tax-advantaged way. There are several such plans, including:

Contribution Limits for IRAs

“According to the IRS, income limits are based on modified adjusted gross income,” explains Chalmers Brown in another Due article. “For instance, if you’re single, you’re eligible as long as you have a MAGI of less than $124,000. If so, then you are permitted to contribute the maximum amount of $6,000 ($7,000 if age 50 or older) to a Roth IRA.”

“If you earn more than that, you can still contribute to a reduced amount,” adds Chalmers. “The catch? Your MAGI must be between $124,000 and $139,000. But, once you cross that $139,000 amount, you’re no longer eligible.”

“Married couples with a modified Adjust Gross Income (AGI) of less than $196,000 can also contribute up to the limit,” Chalmers says. “If your AGI is between $196,000 and $206,000, then you may qualify to make reduced contributions. Couples with an AGI of $206,000 or higher do not meet the criteria.”

Are There Any Other Retirement Options?

In addition to a DC or IRA, you may also want to explore retirement plans like: