Re: 401K vs IRA maximum annual contribution limit difference

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Subject Author Date Re: 401K vs IRA maximum annual contribution limit difference tbone@steak.com 04-14-2006  Re: 401K vs IRA maximum annual contribution limit ... Phil Marti 04-15-2006  Re: 401K vs IRA maximum annual contribution limit ... Rich Carreiro 04-15-2006  Re: 401K vs IRA maximum annual contribution limit ... Barry Margolin 04-15-2006
Posted by tbone@steak.com on April 14, 2006, 4:04 am Please log in for more thread options >> You seem to be assuming that you have to choose one or the >> other, so they should be comparable. But since you can have >> *both* a 401k and an IRA, why should they be similar? I am referring to traditional IRA, not Roth IRA. My understanding is that once you contribute with pre-tax money to 401K (let's say max out at $15K), you are not eligible for contributing pre-tax money to IRA. However, I think you would be allowed to contribute up to $4K to IRA if you elect not to participate in 401k. So if my above interpretation is correct, then traditional IRA and 401k are indeed exclusive with pre-tax money. << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Posted by Phil Marti on April 15, 2006, 2:08 am Please log in for more thread options > I am referring to traditional IRA, not Roth IRA. My > understanding is that once you contribute with pre-tax money > to 401K (let's say max out at $15K), you are not eligible > for contributing pre-tax money to IRA. You misunderstand. Coverage by the 401(k) does make deductibility of traditional IRA contributions subject to the AGI phaseouts, but it doesn't preclude them. -- Phil Marti Clarksburg, MD << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Posted by Rich Carreiro on April 15, 2006, 2:08 am Please log in for more thread options > I am referring to traditional IRA, not Roth IRA. My > understanding is that once you contribute with pre-tax money > to 401K (let's say max out at $15K), you are not eligible > for contributing pre-tax money to IRA. That's incorrect. The amount of money you contribute to a 401(k) has nothing to do with the amount of deductible contributions that can be made to a traditional IRA: * First off, if your income is low enough, your full trad IRA contribution is deductible no matter how much you (and/or your employer) contribute to your 401(k). * Second, if your income is high enough and you "participate" in a 401(k), some/all of any trad IRA contribution will be non-deductible. However, that has nothing to do with how much you and/or your employer contribute to the 401(k). Just "participating" in the 401(k), even if you make no contributions at all, will activate the deduction limitation rules. > So if my above interpretation is correct, then traditional > IRA and 401k are indeed exclusive with pre-tax money. It's not and they aren't. -- Rich Carreiro rlcarr@animato.arlington.ma.us << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Posted by Barry Margolin on April 15, 2006, 2:59 am Please log in for more thread options >>> You seem to be assuming that you have to choose one or the >>> other, so they should be comparable. But since you can have >>> *both* a 401k and an IRA, why should they be similar? > I am referring to traditional IRA, not Roth IRA. My So am I. > understanding is that once you contribute with pre-tax money > to 401K (let's say max out at $15K), you are not eligible > for contributing pre-tax money to IRA. But you can still contribute to an IRA, it just won't be deductible, i.e. it will be post-tax rather than pre-tax. > However, I think you > would be allowed to contribute up to $4K to IRA if you elect > not to participate in 401k. Actually, the restriction applies if you're covered by a 401K (or some other qualified retirement plan), regardless of whether you choose to contribute, and only if your income is above a threshold. > So if my above interpretation is correct, then traditional > IRA and 401k are indeed exclusive with pre-tax money. True, but why should we restrict the discussion to pre-tax? I contribute to my 401K and also max out my traditional IRA contribution. In years when I'm eligible I contribute to a Roth IRA instead of traditional. -- Barry Margolin, barmar@alum.mit.edu Arlington, MA *** PLEASE don't copy me on replies, I'll read them in the group *** << ======================================================= >> << The foregoing is intended for educational purposes only >> << and does NOT constitute legal OR professional advice. >> << >> << The Charter and the Guidelines for submitting >> << messages to this newsgroup are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Similar Threads Posted Re: 401K vs IRA maximum annual contribution limit difference April 11, 2006, 3:31 am maximum IRA + 403b contribution August 7, 2008, 12:38 pm Roth IRA contribution limit June 18, 2006, 11:48 pm Does Simple IRA Limit of $10.5K Exclude The Employer Contribution? February 5, 2008, 8:19 pm Does 401K limit my IRA ? 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