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Traditional IRA contribution limits?
Posted on 2/13/10 at 10:43 am
Posted on 2/13/10 at 10:43 am
Are there contribution limits for traditional IRAs? My previous understanding was that Roth IRAs had a max contribution of $5k but traditional IRAs had a much higher limit - but recently after doing some research I read something that made it sound like you can only contribute an annual max of $5k to either. Is this true?
3
Posted on 2/13/10 at 11:43 am to Pheeze
True
Posted on 2/13/10 at 11:52 am to Pheeze
It is true. Of course, one is pre-tax and one is post-tax.
Posted on 2/13/10 at 12:20 pm to foshizzle
So with that - one should progress through the retirement options as follows:
1 - Contribute to 401k up to company match
2 - Contribute to Roth IRA to 5k limit
3 - Add to 401k up to max allowable
And past this level, there are no more tax-advantaged options, correct?
My previous thinking led me to believe that there was no reason to contribute to a 401k over the company match because you'd get the same benefits (incl. high contribution limit) with a traditional IRA but with access to many more investment options.
Any problems with my logic?
1 - Contribute to 401k up to company match
2 - Contribute to Roth IRA to 5k limit
3 - Add to 401k up to max allowable
And past this level, there are no more tax-advantaged options, correct?
My previous thinking led me to believe that there was no reason to contribute to a 401k over the company match because you'd get the same benefits (incl. high contribution limit) with a traditional IRA but with access to many more investment options.
Any problems with my logic?
Posted on 2/13/10 at 12:55 pm to Pheeze
quote:
My previous thinking led me to believe that there was no reason to contribute to a 401k over the company match because you'd get the same benefits (incl. high contribution limit) with a traditional IRA but with access to many more investment options. Any problems with my logic?
It depends. If you options in your 401k are limited and high cost you might be better with a taxable account for money above the match, but it would have to take a pretty crappy plan to put you in this situation. Just remember, anything you put into a 401k will be taxed as income upon withdrawal in retirement, potentially increasing your marginal tax bracket. Income from taxable accounts have lower tax rates on qualified dividends and long term capital gains although this could change in coming years. The compounding effect of tax deferral is hard to beat long term.
Posted on 2/13/10 at 1:05 pm to Pheeze
Number 4 would be a variable annuity if you want a tax-advantaged account.
But if you can afford to max out your 401 and IRA and still have money left over you are a special person indeed.
But if you can afford to max out your 401 and IRA and still have money left over you are a special person indeed.
Posted on 2/13/10 at 2:41 pm to Dr Rosenrosen
Is there a limit on how much you can put into any IRA the first time you open one?
Posted on 2/13/10 at 4:54 pm to Dr Rosenrosen
If you can get a Health Savings Account, that is another option. Essentially it is a traditional IRA, except that you can withdraw tax-free for qualified medical expenses.
If your employer offers one of these it is likely with an employer match - always a good thing.
If your employer offers one of these it is likely with an employer match - always a good thing.
Posted on 2/13/10 at 4:55 pm to wegotdatwood
quote:
Is there a limit on how much you can put into any IRA the first time you open one?
The limit is the annual contribution limit.
Rollovers are another matter, but of course that is when you are "rolling over" another similar account to an IRA. For example, you can (if memory serves) roll over a 403(b) to a traditional IRA. But that doesn't count as a contribution.
Posted on 2/13/10 at 6:34 pm to foshizzle
traditional IRS's are only deductible if you earn around 40-50k per year. Roth IRA would be a better choice if you cant deduct and the limits are over 100k
Posted on 2/14/10 at 9:59 am to Pheeze
Are you self-employed? If so, there are alternative forms of IRAs with higher contribution limits.
Posted on 2/14/10 at 10:23 am to agdoctor
quote:
traditional IRS's are only deductible if you earn around 40-50k per year. Roth IRA would be a better choice if you cant deduct and the limits are over 100k
Actually, this is where an HSA does better. So far as I know there is no income limit affecting whether the contribution is deductible. The contribution limit is lower though.
But you can contribute to both without any problem if you have the funds to do so. If you're healthy and don't have significant medical expenses you can pay for that out of pocket while maxing out both your IRA and your HSA.
Posted on 2/15/10 at 2:07 pm to foshizzle
It used to be you could deduct 100% of traditional IRA's up to 410k of income and then the amount declined until at 50K none was deductible. that was before Roth IRA's so it could have changed. You could always put the money in you just couldnt deduct
Posted on 2/15/10 at 2:33 pm to Dr Rosenrosen
quote:
But if you can afford to max out your 401 and IRA and still have money left over you are a special person indeed.
401K max is only $16,500 and IRA is $5,000, right? Doesn't seem like nearly enough to cover retirement investing (assuming a Roth is not an option). But I could be missing something.
Beyond 401K and IRAs, you're pretty much looking at traditional mutual funds to make up the difference, right?
Posted on 2/15/10 at 3:32 pm to Thomas Hudson
quote:
Doesn't seem like nearly enough to cover retirement investing
A 25 year old maxing out 401k and IRA at today's limits until age 60 would have the following at age 60, assuming these annual returns:
5% = $2.1MM
6% = $2.6MM
7% = $3.2MM
8% = $4.0MM
And this doesn't even factor in catch-up contributions available at age 50+.
What really hurts are the highly compensated employee limitations. It's entirely possible that someone spending a large portion of his/her career just above the HCE hurdle (currently $110k) could be in a world of hurt at retirement, having severely limited access to tax sheltered retirement saving as compared to those below and well-above the hurdle. Brilliant move, Congress.
Posted on 2/16/10 at 10:03 am to Dusty Bottoms
quote:
A 25 year old maxing out 401k and IRA at today's limits until age 60 would have the following at age 60, assuming these annual returns:
5% = $2.1MM
6% = $2.6MM
7% = $3.2MM
8% = $4.0MM
But that's nominal value, not real value, right? (Been a while since econ
) $4MM in today's dollars doesn't seem like all that much in 2050.
quote:
What really hurts are the highly compensated employee limitations. It's entirely possible that someone spending a large portion of his/her career just above the HCE hurdle (currently $110k) could be in a world of hurt at retirement, having severely limited access to tax sheltered retirement saving as compared to those below and well-above the hurdle. Brilliant move, Congress.
Exactly.
Posted on 2/16/10 at 11:19 am to Thomas Hudson
quote:
Beyond 401K and IRAs, you're pretty much looking at traditional mutual funds to make up the difference, right?
if you want to shelter earnings the 3rd place to put money would be in an annuity with an insurance company. Personally I invest in mutual funds that are very tax efficient like index funds so I dont have to pay much out in taxes.
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