Tax-deferred alternatives to a 401k plan
Dan from Washington writes:
Q: I'm not elegible to participate in my employer's 401K plan until July 2008. My income is such that any IRA contribution would not give me a tax deduction. What can I do to save for retirement and claim the full tax deduction?
A: We must first advise that our expertise lies in tax law, not giving investment advice. Always consult a financial professional for investment advice and guidance before making your decision.
There are several options that Dan could pursue.
Roth 403(b)
The Roth 403(b), also called the Roth 401k, does not allow you to avoid paying income tax on the amount that you contribute to your retirement plan. But once you retire, the amount that you withdraw from the retirement plan is not treated as taxable income. The maximum yearly contribution for a Roth 401(k) is $15,000 for individuals under 50 years of age, and $20,000 for individuals 50 years old and older. There are no limits to participation based on individual Adjusted Growth Income.
Roth IRA
This may be an option for some folks and can be started by any individual. There are limitations that apply to the Roth IRA though. A person may not contribute to a Roth IRA if the personal Adjusted Growth Income (AIG) exceeds $110k per year, or $160k for couples filing jointly. Furthermore, the maximum yearly amount for contribution is $4,000 for individuals under 50 years of age, and $5,000 for individuals 50 years old and older.
Other choices
If your employer does not offer a retirement plan or matching contributions, or if you need to rollover your retirement plan due to a change in jobs, there are also alternatives available from banking institutions and life insurance carriers. For example, some packages offer to match S&P 500 increases on a yearly basis and provide protection in the event that the market declines. With this type of plan, if the stock market increases substantially, so does your retirement, without risk of going down.
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Q: I'm not elegible to participate in my employer's 401K plan until July 2008. My income is such that any IRA contribution would not give me a tax deduction. What can I do to save for retirement and claim the full tax deduction?
A: We must first advise that our expertise lies in tax law, not giving investment advice. Always consult a financial professional for investment advice and guidance before making your decision.
There are several options that Dan could pursue.
Roth 403(b)
The Roth 403(b), also called the Roth 401k, does not allow you to avoid paying income tax on the amount that you contribute to your retirement plan. But once you retire, the amount that you withdraw from the retirement plan is not treated as taxable income. The maximum yearly contribution for a Roth 401(k) is $15,000 for individuals under 50 years of age, and $20,000 for individuals 50 years old and older. There are no limits to participation based on individual Adjusted Growth Income.
Roth IRA
This may be an option for some folks and can be started by any individual. There are limitations that apply to the Roth IRA though. A person may not contribute to a Roth IRA if the personal Adjusted Growth Income (AIG) exceeds $110k per year, or $160k for couples filing jointly. Furthermore, the maximum yearly amount for contribution is $4,000 for individuals under 50 years of age, and $5,000 for individuals 50 years old and older.
Other choices
If your employer does not offer a retirement plan or matching contributions, or if you need to rollover your retirement plan due to a change in jobs, there are also alternatives available from banking institutions and life insurance carriers. For example, some packages offer to match S&P 500 increases on a yearly basis and provide protection in the event that the market declines. With this type of plan, if the stock market increases substantially, so does your retirement, without risk of going down.
posted by Scott at
6:56 AM
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