How much can I contribute to my IRA?

Question

I am 29 years old and earned a gross salary this year of $112,000. I started participating in a 401(k) through my employer late in the year, so I only contributed $5,000 to it. I was also married this year, so I will likely file jointly with my wife for our 2006 tax return.

I have an existing Traditional IRA account and have considered opening a Roth IRA, but I don't know if I qualify, as an individual or as a couple, due to my high income. My wife's income is also high, at approximately $70K gross.

What are my best options? Can I make a non-deductible contribution to my Traditional IRA for the maximum amount of $4K? Am I ineligible to participate in a Roth IRA at my income level? Please help me with some advice!

Answer 1

I am in almost the exact situation. Luckily for me (and maybe you), I work for an investment bank and I have someone that takes care of this stuff for me. This is what I was told.

You are out of luck with the IRA since you have a 401K this year. Same for your wife. What you can do is contribute $4K each to an regular IRA and NOT get the deduction. In 2010 the law changes and there is no income limit on transfer from IRA to Roth IRA. So if you do $4K in 2006-2010, then you can each convert that $20K into a Roth without paying any tax (since you already paid tax on it, you would only pay tax on any money that you convert that you MADE in the IRA, but you do not have to convert that part if you do not). So this change in the law is ALMOST like you being allowed to put money into a Roth today (just have to pay tax on the gains from 2006-2010). Both my wife and I are definitely doing this.

Oh yea, and max out your 401K too

Answer 2

you earn too much to make any deductible contributions, but you can still make contributions. but before we get into that, let's look at the Roth limits since we may not know everything about your situation:

Adjusted Gross Income Limits

Married filing Jointly - up to $150k
Reduced Contribution - less than $160k

so, if $180k total between the two of you is your combined adjusted groSs income (meaning minus any qualifying deductions), then no, you cannot do a Roth.

the limits for having a Trad and an Employer plan are way low, so it is unlikely you would qualify, but here are the limits:

Single - Up to $32k - partials for $32,001-$41,999
Married/joint - $52k - partials for $52,001-$61,999
Married/separate - can't - partials up to $10k


so, let's get back to the whle ball of wax. lots of people are saying max out your 401(k). there are only three reasons to do this, so if none apply to you, don't worry about it.

1. Your employer matches a certain % or $ amount

this kinda goes without saying since it is basically free money.

2. You can put more in to your 401(k) than you can into your traditional or roth IRA

if the goal is retirement, then the more you put away, the more interest you gain. i think we can all agree that's a good idea.

3. You've maxed your IRA contributions, and still have money you want to put in a deferred/retirement account

this is very rarely a reason, but there are some plans where the amount you can put away is lower than what you can put in your IRA. if this is the case, you max your IRA first if you don't get any company matching, and then you fill your 401(k).

the good news is, contrary to what others here are saying, is that yes, you can contribute to your Traditional IRA. everyone under age 70½, with earned income, is eligible to contribute to a Traditional IRA — there's no income limit. you just can't deduct it from your income unless you either A) don't participate in an employee plan, or B) come in under the above limits. so, it goes in as a non-deferred contribution. it will count fully towards your "cost basis", meaning that none of that $4k will have to have taxes taken out of it since it has already been taxed.

happy saving!

Answer 3

The maximum amount anyone can contribute into an IRA for 2006/2007 is $4000.00 if under 50 and $5000.00 if over 50 for catch up. Whether you have it in a Roth or Traditional, combined you can still only contribute $4000.00 annually. 401 K plans are seperate so the maximum amount of contribution is different. The difference between the traditional and roth is that the roth can never be tax deductible where as the traditional can be. SInce the Roth can never be tax deductible, when you withdraw the funds from it in the future you won't have to pay taxes. As for the maximum income amount per year at this time I don't remember the figures. For tax purposes, people usually participate in the traditional IRA if they want to be able to deduct it at the end. Best advice would be to consult an account to make sure you contribute it into the right account.

Answer 4

damn! You make that much a year? Can I work for you? I think under a ROTH IRA you can put up to 3K in it a year. Your bank will inform you of how much you can put into it each year and if you qualify. If you don't want to go to a bank just yet-for what ever reasons-ask a friend that may work in the banking industry. Just remember-don't take the money out before you plan to retire. Good luck.

Answer 5

You can't contribute to a 401K and an IRA in the same year.

Answer 6

Both you and your wife should max out your 401K contributions!!!

And, hire a really good tax CPA.

Answer 7

max