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IRA Contributions When You Contribute to an Employer Retirement Plan

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

I am maxing out my 401(k) or I am contributing to a 401(k), can I also make an IRA contribution? We get asked that question a lot.

The answer is, YES. But, you may not be able to deduct your IRA contribution.

First, let's talk about the contribution. Participation in any employer retirement plan, including IRA based SEP and SIMPLE plans, does NOT impact your ability to make an IRA or a Roth IRA contribution. The only qualification is that your earned income must equal or exceed the amount you contribute. You can make a contribution for yourself and for a non-working or lower wage earning spouse as long as you file your income tax return as married filing jointly.

For 2013, the contribution limits are $5,500 per person, and if you are age 50 or older during the year, you can contribute an extra $1,000 for a total of $6,500 per person. You cannot contribute $5,500 to an IRA and $5,500 to a Roth IRA. The maximum you can contribute is $5,500, which can be split between an IRA and a Roth IRA if you wish.

Now let’s talk about deducting your IRA contribution. If you are covered by an employer plan and file your tax return as married filing jointly, for 2013, your ability to deduct your IRA contribution phases out when your adjusted gross income is between $95,000 and $115,000. If you are filing your return as single, the phase-out range is $59,000 to $69,000. If you are not covered by a company plan but your spouse is covered, the phase-out range for you is $178,000 to $188,000. If you file married-separate, your phase-out range is $0 to $10,000.

If you cannot deduct your contribution and you decide to make the contribution to a Roth IRA instead, you have a different set of rules. If your income is too high, you cannot make a Roth IRA contribution. For 2013, when you are married filing jointly, the phase-out range for making a Roth contribution is $178,000 to $188,000. If you are single, the phase-out range is $112,000 to $127,000, and if you are married filing separate, the phase-out range is $0 to $10,000.

As with most IRA rules, what seems simple has its complications. For an Ed Slott-trained advisor, please go to our website: Don’t be a do-it-yourselfer. Mistakes made in IRAs can be very costly.

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