|
Posted by on January 8, 2007, 5:00 am
I have done considerable research on my investment options and would
like some confirmations on my conclusions.
My profile: 27 yrs old. Single. Earned 92,000 in Year 2006. I have a
401K account with my employer
Question 1. Traditional IRA : As I understand it if I contribute to
Traditional IRA I will not be able to deduct any of the money from my
taxes because my income (92,000) is above the limit which I understand
is 60000. Is this correct?
Question 2. I can contribute the maximum $4000 to a Roth IRA account as
my income of 92,000 is less than the limit of 95,000. I understand that
this contribution can't be deducted for tax purposes. Correct?
Thank you very much for your help
|
|
Posted by woessner@gmail.com on January 8, 2007, 7:46 am
dukot123@gmail.com wrote:
> Question 1. Traditional IRA : As I understand it if I contribute to
> Traditional IRA I will not be able to deduct any of the money from my
> taxes because my income (92,000) is above the limit which I understand
> is 60000. Is this correct?
You are correct, sir.
> Question 2. I can contribute the maximum $4000 to a Roth IRA account as
> my income of 92,000 is less than the limit of 95,000. I understand that
> this contribution can't be deducted for tax purposes. Correct?
Correct, again. Roth contributions are never deductible. Instead,
when you withdraw the money, the earnings are not taxed at all
(provided you followed all the rules). The Roth also offers more
flexibility because you can withdraw your contributions at any time.
As an aside, Roth eligibility is determined by your modified adjusted
gross income (MAGI). This is not a really straightforward quantity to
compute. However, your 401k deduction counts toward your MAGI. So if
even if your gross income were $110,500, you could still qualify for a
full Roth IRA contribution by contributing $15,500 to your
(traditional) 401k. Then your MAGI would be at most $110,500 - $15,500
= $95,000.
--Bill
|
|
Posted by Phil Marti on January 8, 2007, 8:17 am
> My profile: 27 yrs old. Single. Earned 92,000 in Year 2006. I have a
> 401K account with my employer
>
> Question 1. Traditional IRA : As I understand it if I contribute to
> Traditional IRA I will not be able to deduct any of the money from my
> taxes because my income (92,000) is above the limit which I understand
> is 60000. Is this correct?
Probably. You are correct that you're subject to the income test for
deducting traditional IRA contributions, but you don't use gross income for
that test. You use Modified AGI, as explained in IRS Publication 590. The
most important difference is that your 401(k) contribution reduces your
gross pay when computing AGI.
> Question 2. I can contribute the maximum $4000 to a Roth IRA account as
> my income of 92,000 is less than the limit of 95,000. I understand that
> this contribution can't be deducted for tax purposes. Correct?
Probably. Same comment about AGI applies. But your income other than
wages/salary also adds to AGI.
The easiest way to wrap your head around the concept of AGI is to get a Form
1040 and see what goes into computing AGI, which is line 22.
--
Phil Marti
Clarksburg, MD
|
|
Posted by jIM on January 8, 2007, 11:43 am
Phil Marti wrote:
>
> > My profile: 27 yrs old. Single. Earned 92,000 in Year 2006. I have a
> > 401K account with my employer
> >
> > Question 1. Traditional IRA : As I understand it if I contribute to
> > Traditional IRA I will not be able to deduct any of the money from my
> > taxes because my income (92,000) is above the limit which I understand
> > is 60000. Is this correct?
>
> Probably. You are correct that you're subject to the income test for
> deducting traditional IRA contributions, but you don't use gross income for
> that test. You use Modified AGI, as explained in IRS Publication 590. The
> most important difference is that your 401(k) contribution reduces your
> gross pay when computing AGI.
>
If he's covered by a 401k, he cannot deduct traditional IRA
contributions (correct?). So I would remove the "probably" and state
he is correct, regardless of MAGI calculations. Cannot deduct because
he is covered by a 401k.
|
|
Posted by woessner@gmail.com on January 8, 2007, 12:10 pm
jIM wrote:
> If he's covered by a 401k, he cannot deduct traditional IRA
> contributions (correct?). So I would remove the "probably" and state
> he is correct, regardless of MAGI calculations. Cannot deduct because
> he is covered by a 401k.
It's a function of both, actually. A single filer who is not covered
by an employer plan can always deduct a traditional IRA contribution
regardless of MAGI. A single filer who is covered by an employer plan
can still deduct a traditional IRA contribution if their MAGI is less
than $50K (with a partial deduction allowed between $50K and $60K). Of
course, the OP is not in this category.
The situation gets slightly more complicated if you're married and not
covered by an employer plan. See IRS Pub 590, tables 1-2 and 1-3 for
details.
--Bill
|
| Similar Threads | Posted | | 529 question | January 11, 2007, 4:41 pm |
| TVM Question, please help | February 8, 2007, 4:33 pm |
| S.S. Question, Please | September 1, 2007, 8:40 pm |
| 403(b)/457(b) question | October 3, 2007, 4:24 pm |
| Re: Another Soc Sec question | October 30, 2007, 11:29 am |
| RMD question | January 17, 2008, 1:04 pm |
| SEP question | May 16, 2008, 8:17 am |
| annuities question(s) | October 24, 2006, 8:33 am |
| Another gifting question | December 14, 2006, 9:14 am |
| Another IRA / Keogh question | December 21, 2006, 11:25 am |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap