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Jeff Fleming
I've Maxed Out My 401(k). Can I Qualify for a Roth IRA?
Question:
My wife and I work for companies that provide great 401(k) programs. I'm 49 and contribute 12 percent of my $70k salary. My wife is contributing 10 percent of her $60k salary to her fund. However, over the next six years we'll have to help put two sons through college. We're trying to find the balance between continued retirement savings and paying the college bills that lie ahead of us. We have hit the maximum for our 401(k) plans. Can we use a Roth IRA to build retirement funds?
Answer:
IRA contribution rules have become increasingly complicated over the past few years, as the laws have continued to change. The first rule to keep in mind is that Roth IRAs are subject to income limits; although those limits are fairly high. For instance, married persons filing jointly can still contribute if they make less than $150,000. Contributions are phased out for those married joint filers with income between $150,000 and $160,000. You would squeak under this limitation with your combined income of $130,000, so you are okay so far.
Now for the more complicated rules. Both of you fall under the classification of "active participant," which means that you are employed and eligible to contribute to qualified plans. This, as you may know, may limit your ability to make additional contributions to a Roth IRA under Code Sec. 219(g), again depending upon your adjusted gross income (AGI). In the year 2000, if your combined AGI exceeds $62,000, then you will not be eligible to contribute to a Roth. As your income exceeds this amount, you will not be able to make additional retirement plan contributions.
For information on recent changes to IRA rules, see:
IRA, 401(k) Contribution Limits Rise
IRA Across Generations
Trading With Your IRA
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