401K and Traditional IRA contribution for 2019

[fh2000]

DW will work just few days in 2019, then retire.

She will receive PTO payout as part of the last paycheck for 2019. She opted to deduct 50% for 401K and will contribute about $12,000. She is older than 50, and the total 401K limit+catch up, will be $25,000 for 2019.

Traditional IRA limit for 2019 is $6000 + $1000 catch up, total $7000.

My question is: after she contributes $12,000 in 401K, can she still contribute to a Traditional IRA since she has not max out her 401K limit of $25,000?

 

[pb4uski]

Why doesn't she just contribute 100%? That's what I did and then later rolled over 401k to an IRA.

 

[fh2000]

Why doesn't she just contribute 100%? That's what I did and then later rolled over 401k to an IRA.

Thanks. The company sets a 50% limit, so she can only contribute up to that amount.

 

[gauss]

The IRS contribution limits on 401ks and traditional IRAs are independent of each other so you should be able to contribute to both if you meet the other conditions.

Make sure that your household has enough earned income,such as that reported on W-2, in 2019 to qualify for the IRA contribution.

If you are cautious, you could wait until early 2020 to make the 2019 IRA contribution once you have your tax reporting documents in hand.

-gauss

 

[fh2000]

The IRS contribution limits on 401ks and traditional IRAs are independent of each other so you should be able to contribute to both.

Just make sure that your household has enough earned income in 2019 to qualify for the IRA contribution.

-gauss

Thanks for that information. We will have enough earned income, and we are trying to reduce income to get below the ACA subsidy level.

 

[bingybear]

as long as there is earned income to offset the amount to both retirement accounts you should be fine.

 

[fh2000]

One more question: our income for 2019 will be mostly bonus payout and DW's PTO payout.

In the past, bonus was grouped together in W-2 as ordinary income. Next year, by the time we receive the bonus payout, we are no longer employees. Will the bonus be shown as ordinary income and can be used as part of ACA MAGI calculation?

 

[kaneohe]

Don't forget that you can use your income to cover DW's IRA too if you have enough.

 

[pb4uski]

∆∆∆∆∆∆ Yes, so between her 401k, and your IRAs you can defer it all if you wish to.

Another angle if the 50% limit is just for pre-tax is to put the remainder into 401k after-tax or 401k Roth and later roll it into a Roth IRA.

 

[Sunset]

The IRS contribution limits on 401ks and traditional IRAs are independent of each other so you should be able to contribute to both if you meet the other conditions.

Make sure that your household has enough earned income,such as that reported on W-2, in 2019 to qualify for the IRA contribution.

If you are cautious, you could wait until early 2020 to make the 2019 IRA contribution once you have your tax reporting documents in hand.

-gauss

Also OP - Besides you wife contributing to both, you can also contribute to an IRA even if you don't work, since your wife works.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-contributions

"
I want to set up an IRA for my spouse. How much can I contribute?

If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs.
Your total contributions to both your IRA and your spouse’s IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income."

 

[bingybear]

One more question: our income for 2019 will be mostly bonus payout and DW's PTO payout.

In the past, bonus was grouped together in W-2 as ordinary income. Next year, by the time we receive the bonus payout, we are no longer employees. Will the bonus be shown as ordinary income and can be used as part of ACA MAGI calculation?

Should be part of the MAGI calculation.

 

[fh2000]

Also OP - Besides you wife contributing to both, you can also contribute to an IRA even if you don't work, since your wife works.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-contributions

"
I want to set up an IRA for my spouse. How much can I contribute?

If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs.
Your total contributions to both your IRA and your spouse’s IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income."

Thanks for that. I have a nuance question for tIRA tax deduction amount.

Per "IRA Deductions Limits if covered by Retirement plan at work", the Married Filling Jointly MAGI is $103,000 and less for full deduction.
https://www.irs.gov/retirement-plan...-you-are-covered-by-a-retirement-plan-at-work

tIRA contribution amount itself is used to reduce MAGI, so should the MAGI amount used for calculation, be before or after the tIRA contribution amount?

For example, if my income is $115000. If I first deduct $9000 from other contribution (401K, HSA), MAGI is now, $106000. After 2 tIRA contributions, the new MAGI is $92000

Does the tax calculation use the first MAGI $10600 to determine how much tIRA contributions can be further deducted? Or as long as the final MAGI $92000 is less than $103000, all can be deducted?

 

[Sunset]

I use tax software which will determine for me the deduction value of a contribution. This does not at these levels of income that it affects the contribution AMOUNT. So a full contribution can still be made (although it would be cleaner to put the "extra" non-deductible amount in a ROTH).

Remember any contribution that is NOT deductible will be in the IRA as a post tax contribution (therefore tax free upon withdrawal, with the annoying yearly calculation of a % of total)

Does the tax software show you the details (or look at the tax worksheet generated), I don't recall this, but you could try it with last year's software to get an idea.

 

[kaneohe]

...........................

tIRA contribution amount itself is used to reduce MAGI, so should the MAGI amount used for calculation, be before or after the tIRA contribution amount?

For example, if my income is $115000. If I first deduct $9000 from other contribution (401K, HSA), MAGI is now, $106000. After 2 tIRA contributions, the new MAGI is $92000

Does the tax calculation use the first MAGI $10600 to determine how much tIRA contributions can be further deducted? Or as long as the final MAGI $92000 is less than $103000, all can be deducted?

TIRA contribution reduces AGI (if deductible). However it does not reduce the TIRA deductibility MAGI: line 32 of the 1040 is the TIRA deduction. From your link wksht 1.1 has this line so you would use your 106K.

1. Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32