Jul 17

Can I have an IRA and also a 401K plan at the sametime?

I am planning on getting a Traditional IRA plan so I can put away $4000 tax free for this year. However, my company may possibly introduce a 401K plan soon.

If I invest $4000 in an IRA account this year, and if my company introduces a 401K plan a little later this year, am I allowed to contribute to both IRA & 401K plans in the same year?

FYI, my filing status is married filing jointly and my wife has a 401K plan at her work place.

Would appreciate any guidance here. Thanks.


5 comments so far...

  • Rahrah Said on July 17th, 2010 at 4:36 pm:

    Yes, you can – and if you have the ability, you should. Always diversify funds if possible. Plus most employers usually do some sort of 401K match while the IRA plan give some sort of tax incentives.
    Talk to a Tax agent to answer specific questions about maximum amounts you can invest, etc.

  • Gregory B Said on July 17th, 2010 at 5:22 pm:

    The short answer is “yes, you can have an IRA and contribute to a 410K”.

    But…
    The government sets limits to the amount that you can invest in both depending on your combined incomes.

    The limits are here:

    http://www.soundmindinvesting.com/topics/s_iras.htm

  • paul y Said on July 17th, 2010 at 6:05 pm:

    Yes, you can contribute to both. Depending on your age and current tax situation, a roth may be better. Although you do not get a tax deduction on roth contributions, every cent of gain is tax free. If your roth grows 500k, uncle Sam doesnt take a dime. A 401k and traditional ira give you a current year deduction, but remember that you will pay tax on the WHOLE amount when funds are withdrawn. Since you are married filing jointly, the is a 160k income cap in order to qualify for a roth. But remember, a 401k should take priority over ANY ira if your employer also contributes. Why would anyone not take advantage of free money.

  • TaxMan Said on July 17th, 2010 at 6:44 pm:

    If you participate in your employers 401k or pension plan, the box labeled “RP” on your W-2 will be marked. Why is this important? If this box is marked on your W-2, then it is possible that some or all of your contributions to your Trad IRA will not lower your taxable income. You will still be allowed to make the IRA contribution, but you will not be able to deduct it on your taxes. The contribution will be called “post-tax” and you’ll have to fill out a form 8606 when you do your tax return. When you ultimately pull money out of your IRA when you retire, the amount you contributed “post-tax” will not be taxed again…only the gains will be taxed.

    Since the gains will be taxed, you are better off (as stated by another answerer) to put the money into a Roth IRA (if you are able). The Roth IRA also lets you put money in post-tax, but all money taken out in retirement is not taxed…including the gains.

    1) You and your spouse can put $4,000 into your respective Traditional IRAs regardless of income or boxes on W-2s. You can put in $5,000 if you are 50 or older. You can NOT put in more money than you earned…so if you only earned $2,300, you can only put in $2,300 in your IRA. You can include your spouses income to determine the minimum amount. For example, if you earned $2,000 and she earned $10,000, together, your $12,000 far exceeds the $8,000 maximum, so you will be able to put in the maximum. Just because you earned less than $4,000 is irrevalant.

    2) Whether or not you can deduct your Trad IRA contributions depends on several things.

    3) If neither of you have any “RP” boxes checked on any of your W-2s, then you can deduct the entire contribution you both made to your respective Trad IRAs.

    4) If you do have boxes checked, then there is a complex formula you need to use to determine how much if any of either of your contributions are deductable. Please refer to Publication 590 from the IRS (see link below). If, for 2007, your combind AGI is $83,000 or less, you can both deduct any Trad IRA contribution. If your combind AGI is greater than $166,000, then neither of you can deduct your contribution. Between these two numbers, you must refer to the publication or contact your tax preparer.

    5) If your contributions will not be deductable, try to put money into a Roth IRA instead. If you are not allowed to put money into the Roth, the non-deductable contribution to the Traditional IRA is your only recourse. Please max out your 401k before making non-deductable Trad IRA contributions.

  • acmeraven Said on July 17th, 2010 at 6:48 pm:

    Yes, you can have both. Max them out. The democrats greed for tax dollars may restrict them in coming years though.

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