7

I am single, and make more money (more than $200k) than any of the limits I've seen for contributions or deductions for either Roth or traditional IRAs. My employer has a 401k plan.

I currently do not have an IRA (other than a rollover IRA from my 401k from a previous employer). I do have a 401k with my current employer.

Given this info, am I permitted to open and contribute anything to either kind of IRA? The way I am reading things:

  1. I cannot contribute to a Roth IRA
  2. I cannot deduct contributions to a traditional IRA, but I can contribute up to $5500 (post-tax)

Is this correct? If so, is there any reason to contribute to a traditional IRA? Are there other retirement options (besides my existing 401k) for someone with my salary?

  • Did you check whether your employer's 401(k) plan offers a traditional post-tax contribution option? This kind of post-tax contribution pre-dates the Roth option and is still available in some plans. Your traditional post-tax contributions wouldn't be limited by the $17,500 limit. Rather, there's a combined limit of $51,000 (in 2014) for employee pre-tax, Roth, traditional post-tax, & employer contributions. While you wouldn't get a tax deduction for traditional post-tax contributions, earnings on that money would benefit from tax deferral, and the post-tax basis can be withdrawn tax-free. – Chris W. Rea Jan 8 '14 at 20:50
  • Here's a link with more information on the traditional post-tax option ... Quote: "Section 415(c)(1)(A) limits total contributions to defined contribution plans to $50,000 in 2012. The limit for an after-tax 401k is the difference between the amount already contributed by the employer and employee, and the Section 415 limit." – Chris W. Rea Jan 8 '14 at 20:52
  • (p.s. I suggest you check your 401(k)'s summary plan description document for a definitive answer.) – Chris W. Rea Jan 8 '14 at 20:56
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Does your current 401(k) have low fees and good investment choices? If so you might be able to "roll-in" your rollover IRA to your 401(k), then do a backdoor Roth IRA contribution. A Roth IRA would be far more useful than a non-deductible traditional IRA.

3

"I currently do not have an IRA (other than a rollover IRA from my 401k from a previous employer)" The source is irrelevant. You have an IRA. The reason to keep contributing is that at some point, you might transfer the pretax dollars into a 401(k) and the post tax dollars can be converted to Roth.

Other than the above, investing in a standard brokerage account (a non-retirement account) has its positives. Gains can see long term cap gain treatment, and the assets see a step-up in basis when you die.

  • IMHO, "post-tax" is ambiguous. Did you specifically mean a plain investment account with a broker or mutual fund dealer? The mention of capital gains seems to imply so. FWIW, when I see "post tax", my brain also wants to think about the traditional post-tax contribution option available in some (but not all) employer 401(k) plans, and Roth-type accounts. – Chris W. Rea Jan 8 '14 at 20:44
  • Edited to correct. Agreed, Roth is post tax, as is non-deducted IRA. Bad choice of words. – JTP - Apologise to Monica Jan 8 '14 at 20:59
  • No problem. Did get me thinking about whether the OP considered if his 401(k) plan allows traditional (non-Roth) post-tax contributions. Sometimes an option. Higher limit. – Chris W. Rea Jan 8 '14 at 21:01

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