Can I still contribute to a traditional IRA if I contribute to my 401(k) plan at work?
It might be a good idea. Be sure to check with your CPA on the rules regarding IRAs. Extra retirement savings could make up the income shortfall many women experience when it comes to retirementbecause they have had breaks in employment for maternity and child raising, or because they have earned less, saved less and invested more modestly than their male counterparts.
Yes. Anyone with earned income can open and contribute to a traditional IRA. The contribution limit is $3,000 for tax years 2002-2004, plus an additional "catch-up" contribution if you're 50 or older ($500 for tax years 2002-2005). However, you may not be able to deduct your IRA contributions since you're covered by a 401(k) plan at work. Whether or not you can deduct your IRA contributions depends on your filing status and annual income (adjusted gross income, or AGI). Specifically, for 2004:
If your filing status is:
Your IRA deduction is reduced if your AGI is between:
Your deduction is eliminated if your AGI is:
Single or head of household
$45,000-$55,000
$55,000 or more
Married filing jointly or qualifying widow(er)
$65,000-$75,000
$75,000 or more
Married filing separately
$0-$10,000
$10,000 or more
You may also qualify for a partial tax credit for amounts contributed to your traditional IRA or your 401(k) plan. The credit is available to certain taxpayers in tax years 2002-2006.
The 360 Degrees of Financial Literacy Web site offers general information for managing personal finances and does not recommend specific financial actions. For financial advice tailored to your situation, please contact an expert such as a CPA or a personal financial advisor.