401Ks and Traditional IRAs?

Question

I have already contributed the maximum contribution to my company's 401K account. May I also contribute to a traditional IRA for the same year? Please do not confuse my question with ROTH IRAs. Thank you.

Yes, I would like all my contributions to be tax deductable. Otherwise, I would just contribute to a ROTH IRA. Thanks.

Answer 1

You may contribute to a traditional IRA and contribute the maximum to a 401K for the same year. However, if you are "covered by" any retirement plan at work, including a 401K, whether or not you contribute the max, then you can only deduct your traditional IRA contributions if your "modified adjusted gross income" is less than a certain amount. (If your income exceeds that amount, you can contribute, but cannot deduct.)

Because taxes on non-deductible IRAs are confusing, I recommend waiting until you know whether your income for the year will be above, below, or in the phase-out range before deciding whether to contribute.

"For 2007, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow(er),
More than $52,000 but less than $62,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.
For 2007, if you are not covered by a retirement plan at work, your deduction for contributions to a traditional IRA may be reduced (phased out) if you either live with your spouse at any time during 2007 or file a joint return for 2007.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $156,000 but less than $166,000.

If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA."

All dollar amounts indicated above vary from year to year.

Answer 2

Yes. You can contribute. Whether it will be tax deductible or not is another story. The phaseout for single people with 401ks starts at $52k per year and ends at $62k per year. So, if you make over $62k, you can make a Traditional IRA contribution, you just can't deduct it.

Answer 3

it quite is a very close call between a everyday IRA and a Roth IRA. right it is the version. the classic IRA facilitates deducting contributions out of your present day earned earnings, yet once you ultimately eliminate the money from the classic IRA you ought to pay finished taxes on each and every of the money. The Roth IRA on the different hand would not enable deduction of contributions from earned earnings yet there isn't any tax on the quantity earned in the Roth IRA. So the version is form of one between you pay me now or you pay me later. A 401k is very like the classic IRA different than that your are constrained among the suggestions of investment which you have. because of the fact of that decrease it is not so versatile. It does have the excellent thing approximately your being waiting to according to threat make investments extra for retirement interior of a 401k. in view that earning from a everyday IRA are taxed on the completed tax fee, it quite is an advantage to speculate in products that is taxed on the completed tax fee besides--CDs, bonds, REITS, constrained Partnerships, or short term investments. in view that earnings of a Roth IRA are actually not taxed in any respect, the comparable carry actual on the popular investment varieties. That way there is not any tax. Tax advantaged investments at the same time with persons who're undertaking to the decrease fee of long term capital constructive properties, are best invested in exterior of an IRA. yet whilst they're invested in interior of an IRA, it can be a Roth IRA rather than a everyday. do no longer forget that this anticipate you're allocating your investments among a diverse set of investment autos. there's a trick you may additionally use. whilst making an investment in a everyday IRA, you are able to roll over a element to a Roth IRA at any time and pay the tax due on the roll over. If one ought to locate oneself interior of a very low tax bracket in some unspecified time interior the destiny in ones existence, it quite is an advantage to do a roll of an volume right into a Roth IRA that's no better than what might bump one right into a extra physically powerful tax bracket. Assuming one would be gathering earnings for 20 to 30 to forty years on the quantity invested, it appears that evidently to me that the earnings lies with the Roth IRA. there is the the flair to keep away from taxes on a great deal of money and who knows what the tax fee could be 30 years from now?

Answer 4

Yes, you can. However, some or all of your contribution may not be tax deductible. See www.ira.com for details.

Answer 5

Its understood that you need write offs. However, you have exhausted your ability to write off any more money. If you do have discretionary money to save why not capitulate and do the Roth. Its the next best show in town. If the income limits are not a problem take advantage of it. Please read my profile.