I have an employer sponsored account(401k by Fidelity) which was opened in my first company. Now I am in another company. To reduce my tax liability, can I add $5000 to the account so the amount is tax deductible?
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are you still with that company?– mhoran_psprepOct 25, 2012 at 13:49
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No,I changed my job two years ago.– LoveOct 25, 2012 at 14:08
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3You cannot contribute to a 401k plan of an ex-employer; in fact, technically, an employer reduces your salary (at your request) and sends the amount of the reduction to your (non-Roth) 401k account. So, no salary, no contribution. Now, if you had deferred compensation due from your previous employer that is being paid to you this year, it might be possible to arrange to have the ex-employer send some part of it to the 401k account still there in the ex-employer's 401k plan....– Dilip SarwateOct 25, 2012 at 15:14
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3@Dilip answering as comment... hrrrm :/ grumble grumble ;)– Chris W. ReaOct 25, 2012 at 16:27
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1Does the current employer not offer a 401(k)?– JTP - Apologise to Monica ♦Oct 25, 2012 at 21:31
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1 Answer
You cannot contribute directly to that 401k account if you no longer work at the sponsoring company - you have to be on their payroll.
You can, however, roll the 401k over into an IRA, and contribute to the IRA. Note that in both cases, you are only allowed to contribute from earned income (which includes all the taxable income and wages you get from working or from running your own business). As long as you are employed (and have made more than $5k this year) you should have no problem.
I am not certain whether contributing your $5k to a roth IRA would help you achieve your tax goals, someone else here certainly can advise.
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I have some money in my checking account, the rate is low. I want the purpose of tax deductible. What is the best way?– LoveOct 25, 2012 at 15:43
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@Love - how to use existing liquid assets to create a tax deduction is a good new question (although a bit open ended), as such you might consider posting it as a new question on this site.– JeremyOct 25, 2012 at 16:58
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3"You can't throw $5000 from your savings account into a traditional IRA." This is not very correct. Transferring money from a bank account is usually how you contribute to an IRA; you just also need to have at least $5000 in income that year. Since the OP said he is working in another company, I assume that would be true. Oct 25, 2012 at 17:56
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1@Love Though not applicable in this instance since you say you are currently employed, be aware that you cannot contribute to an IRA unless you have earned income, whether it is W-2 wages or self-employment income. Sending money sitting in your checking account to the IRA custodian is fine, that is, the money doesn't have to come from your paycheck. Also, be aware that if your Adjusted Gross Income is large enough, you cannot make a tax-deductible contribution to an IRA, though non-deductible contributions are allowed. Oct 25, 2012 at 18:03
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@user102008, my income is great than $5000. I just want to transfer some money to an existing 401k account, since the deposit rate is too low and I will be taxed too much..– LoveOct 25, 2012 at 18:12