If my employer has 401K and I didn't use it during the past year, can I open a traditional IRA to lower taxes?

Question

I would want to deposit about 2.5K. But my question is, can I deduct those 2.5K from my income thus incurring in less tax (i.e. before-tax savings)? I was told that since my company has a 401K plan my only option was a ROTH IRA (after-tax savings) whether or not I took advantage of the 401K program that year. I live in the state of Washington and I plan on using the 401K starting this year (I would then have to open a ROTH IRA anyway)

Also, if you could point me to any resources that could help me file my taxes on my own that would be lovely (It's my first time and I know I'll need to itemize since I have a mortgage and I have bough some stock as well).

Thanks!

Answer 1

Boston has it right...if you were eligible to defer into your 401k then you were covered whether or not you took advantage of it. By eligible I mean could you have deferred into the plan but you simply chose not to for whatever reason...

But there still may be hope:

If you're single and made less than 60k then you can put at least some into a traditional IRA.

If youre married filing separately and either spouse participates (is eligible) then you have to have made less than 10k to put at least some into a traditional IRA

If you're married filing jointly and your spouse is not eligible for a retirement plan then you have to have jointly made less than 160k to put at least some into a traditional IRA

If you're married filing jointly and your spouse is eligible for a retirement plan then you can put at least some into a traditional IRA if you jointly makde less than 85k.

Buy a copy of turbo tax deluxe and use that to file your taxes. Since Washington doesn't have an income tax you won't need anything more than that, but it will still help you with your itemizing and make sure that you don't miss out on any deductions. Very important not to miss the sales tax deduction calculation...that's a bit clunky in Turbo Tax. I use it and it works well for me.

Answer 2

That will depend upon your modified Adjusted Gross Income and your filing status.

If you are covered by an employer sponsored retirement plan your deduction for an IRA contribution may be reduced. You do NOT need to participate in the employer's plan for this limitation to kick in. If your employer offers a plan and you're eligible to participate the limitation applies whether or not you choose to participate.

Calculation of the limitation is a bit complicated. You should review IRS Pub 590 for complete information. http://www.irs.gov/pub/irs-pdf/p590.pdf

Answer 3

If you don't use the 401K from work, you aren't covered by a retirement plan and you can deposit the maximum amount in a standard IRA. The fact that it was available doesn't matter, only whether you used it in the year you're claiming the IRA deposit.

Answer 4

Just being eligible for a 401k, even if you don't participate makes you ineligible for an IRA, unless your income is low. The income limit used to be $25,000, with a phaseout, it's probably changed some.