IRA options- Finance question

[terrih]

I contributed the full $15,500 amount to my company 401k plan this year. Can I also contribute to a Roth IRA and/or regular IRA?

The second question- my company (which shall remain nameless) fails its non-descrimination test each year. So, for 2008 I am planning to contribute less than the max so I am not 1 of the people that gets refunded - so I am targeting only contributing about $11,500 to my company 401k. Can I then contribute the other $4000 to a regular IRA (one not offered at my company)? Are there better options?

Thanks for any feedback.

-Terri

[YmoBeThere]

ROTH IRA contributions are dependent mainly upon Modified Adjusted Gross Income and marital status rather than whether or not you contributed to your 401(k), so dependent upon that you may be able to contribute. Similarly, a regular IRA where the contributions would be tax deductible or not is also dependent upon your income.

So, your income level will dictate the answers to your questions. Checking a site such as this one will provide a starting point as to what you can do.

http://www.fincalc.com/qua_02.asp?id=6

[hurleyfor3]

To clarify what Ymo wrote (s/he is 100% correct; I'm just wording it differently): What you can contribute to a Roth is completely independent of what you have contributed to a 401(k). It is possible to max out both.

The extent to which you can deduct a traditional IRA is income-restricted if you are also eligible for a sponsored 401(k). It does not matter how much you contribute to the 401(k), only that a 401(k) option exists in the first place. The phaseout threshhold is much lower than that for a Roth (like half; varies depending on filing status). So for your second question, if you are above the income threshhold, the answer is no for a traditional IRA.

[dukestheheat]

terrih-

one more tidbit; if the ira is in your name (one person) you can contribute up to $4,000/year into it; if you're married and you've set it up under two names, then you can run x2/year, so $8,000.00/year to that account.

and again, as the others have stated, the amount you can kick into a roth ira will depend on the income ceiling, which I also do believe is increasing as we speak about it. i am trying to remember that you can't contribute to a roth ira if you're over $150,000/year pre-tax, but check that site put up by YmoBeThere and see if that discusses it (I haven't looked at it).

At the very least, I'd phone up a broker and make a simple appointment to have them check the specifics for you; they'll do this for free and my broker is with Edward Jones.

good luck and go for it,

dth.

[hurleyfor3]

terrih-

one more tidbit; if the ira is in your name (one person) you can contribute up to $4,000/year into it; if you're married and you've set it up under two names, then you can run x2/year, so $8,000.00/year to that account.


$4000 is the contribution limit for tax year 2007 (contribute by 4/15/08). For tax year 2008 (contribute by 4/15/09), it goes to $5000.

[Jeffrey]

I contributed the full $15,500 amount to my company 401k plan this year. Can I also contribute to a Roth IRA and/or regular IRA?

The second question- my company (which shall remain nameless) fails its non-descrimination test each year. So, for 2008 I am planning to contribute less than the max so I am not 1 of the people that gets refunded - so I am targeting only contributing about $11,500 to my company 401k. Can I then contribute the other $4000 to a regular IRA (one not offered at my company)? Are there better options?

Thanks for any feedback.

-Terri

Hi Terri,

You'll need to provide more info. to get better answers. What is your age, your company's 401k matching provisions, your company's 401k investment costs, and your W2 & 1040 AGI. Does your company have a 403, 457B, 457F, or other retirements plans? If so, what are the provisions of those plans?

I can certainly appreciate why you may elect not to share this info. on a public board. You should recognize that the answers to these and other questions will affect/change the prudent answers to your questions.

Best regards,
Jeffrey

[rthomas]

Posted by terrih ...my company fails its non-descrimination test each year. So, for 2008 I am planning to contribute less than the max so I am not 1 of the people that gets refunded...

What does this mean?

[Jeffrey]

Posted by terrih ...my company fails its non-descrimination test each year. So, for 2008 I am planning to contribute less than the max so I am not 1 of the people that gets refunded...

What does this mean?

Hi,

Not enough of the lesser paid employees are participating in the company plan. It limits how much the higher paid employees can contribute.

IMO, it means that the company plan needs improvement and/or the company needs to do a much better job educating their employees on the need to save for retirement.

Best regards,
Jeffrey

[rthomas]

Hi,

Not enough of the lesser paid employees are participating in the company plan. It limits how much the higher paid employees can contribute.

IMO, it means that the company plan needs improvement and/or the company needs to do a much better job educating their employees on the need to save for retirement.

Best regards,
Jeffrey


So employees that are saving get punished by those who don't? That doesn't make a lot of sense to me.

I guess that both the employees who are not saving and the company share some fault. Or maybe the lower paid employees have no incentive to save.

[Jeffrey]

So employees that are saving get punished by those who don't?

Hi,

Yes, that is correct.



That doesn't make a lot of sense to me.

The intent was to limit the ability of bigwigs to put retirement plans in place that only benefitted themselves. Nevertheless, I think it's lame and does not accomplish that purpose. IMO, bigwigs have plenty of other ways to dance around taxes and midwigs end up getting hurt by this top-heavy provision.


I guess that both the employees who are not saving and the company share some fault. Or maybe the lower paid employees have no incentive to save.

Please excuse my redundancy.... IMO, it means that the company plan needs improvement and/or the company needs to do a much better job educating their employees on the need to save for retirement.

Best regards,
Jeffrey

[rthomas]

Hi,

Yes, that is correct.

The intent was to limit the ability of bigwigs to put retirement plans in place that only benefitted themselves. Nevertheless, I think it's lame and does not accomplish that purpose. IMO, bigwigs have plenty of other ways to dance around taxes and midwigs end up getting hurt by this top-heavy provision.

Please excuse my redundancy.... IMO, it means that the company plan needs improvement and/or the company needs to do a much better job educating their employees on the need to save for retirement.

Best regards,
Jeffrey


Thanks. I learned something. I guess I can go eat lunch now.

[Jeffrey]

Thanks. I learned something. I guess I can go eat lunch now.

Hi,

You're welcome. One of the few things I know something about. :)

Enjoy lunch,
Jeffrey

[terrih]

Thanks to everyone that replied. First, I will say, that Jeffery you are right. The company should really take many steps to get the participation level up. 2008 is the first year that I would be in the "refund" group if I were to contribute the full 15,500. There are many employees that continue to max out, even though they know they are going to get money back. Anyway, it is unfortunate, but otherwise is a good company... can't have it all.

I did choose not to provide all my info, since it is such a public site. However, I think you all have confirmed that I can contribute to a ROTH IRA for 2007. I will be doing that for sure. I will continue to weigh my options for 2008.

-Terri

[Jeffrey]

Thanks to everyone that replied. First, I will say, that Jeffery you are right. The company should really take many steps to get the participation level up. 2008 is the first year that I would be in the "refund" group if I were to contribute the full 15,500. There are many employees that continue to max out, even though they know they are going to get money back. Anyway, it is unfortunate, but otherwise is a good company... can't have it all.

Hi Terri,

If you have a good 401k plan (good investment options and low expenses) and are not rushed to file your taxes, then I'd be prone to max-out and await your restated W2 in order to maximize your contribution.


I did choose not to provide all my info, since it is such a public site. However, I think you all have confirmed that I can contribute to a ROTH IRA for 2007. I will be doing that for sure.

IMO, your decision introduces many more important questions such as where will you open the Roth, what is your preferred asset allocation, specifically what will you invest in, etc., etc., etc.

I think one is wise to invest in an unbiased fee-only financial planner to help get their investment house in order. Of course, some planners are much more knowledgeable than others.

Best regards,
Jeffrey

[YmoBeThere]

Okay, I've got one for the crowd. January of last year I put my annual contribution into a Roth. Well, I ran into two problems, I made more money than I expected income wise(I could tell early in the year that it was going to be better) and the big gains I had on my 2007 Roth contribution were leaking away(it was August). So, first item taken care of, go to cash. Second item was handled by taking out my excess contribution. Problem is I used the 2006 income limits instead of 2007 and now it looks like I can contribute a few hundred dollars.

Any thoughts on my options now? Am I allowed to put money back in for 2007? Should I?