"tbone[at]steak.com" <bentseng25[at]gmail.com> wrote:

- quote -

So am I.

- quote -

But you can still contribute to an IRA, it just won't be
deductible, i.e. it will be post-tax rather than pre-tax.

- quote -

Actually, the restriction applies if you're covered by a
401K (or some other qualified retirement plan), regardless
of whether you choose to contribute, and only if your income
is above a threshold.

- quote -

True, but why should we restrict the discussion to pre-tax?
I contribute to my 401K and also max out my traditional IRA
contribution. In years when I'm eligible I contribute to a
Roth IRA instead of traditional.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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"tbone[at]steak.com" <bentseng25[at]gmail.com> wrote:

- quote -

You misunderstand. Coverage by the 401(k) does make
deductibility of traditional IRA contributions subject to
the AGI phaseouts, but it doesn't preclude them.

--
Phil Marti
Clarksburg, MD

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"tbone[at]steak.com" <bentseng25[at]gmail.com> writes:

- quote -

That's incorrect.

The amount of money you contribute to a 401(k) has nothing
to do with the amount of deductible contributions that can
be made to a traditional IRA:
* First off, if your income is low enough, your full trad
IRA contribution is deductible no matter how much you
(and/or your employer) contribute to your 401(k).
* Second, if your income is high enough and you "participate"
in a 401(k), some/all of any trad IRA contribution will
be non-deductible. However, that has nothing to do with
how much you and/or your employer contribute to the 401(k).
Just "participating" in the 401(k), even if you make no
contributions at all, will activate the deduction limitation
rules.

- quote -

It's not and they aren't.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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- quote -

I am referring to traditional IRA, not Roth IRA. My
understanding is that once you contribute with pre-tax money
to 401K (let's say max out at $15K), you are not eligible
for contributing pre-tax money to IRA. However, I think you
would be allowed to contribute up to $4K to IRA if you elect
not to participate in 401k.

So if my above interpretation is correct, then traditional
IRA and 401k are indeed exclusive with pre-tax money.

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"tbone[at]steak.com" <bentseng25[at]gmail.com> wrote:

- quote -

You seem to be assuming that you have to choose one or the
other, so they should be comparable. But since you can have
*both* a 401k and an IRA, why should they be similar?

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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Thanks for all the replies! I agree with most of your
observations (especially the ones on our beloved Congress
:-) As I mentioned before, considering most companies do
matching, for most people 401K is just the logical choice
since they get more out of it, so the discrepany is really
not a big deal for the majority, and thus it will never be a
hot issue that Congress will bother with. On the other hand,
it just seems so simple and logical to me to have both
retriement plans sync up their ceiling. I guess I am one of
the minority who actually does worse since my company is not
doing matching, and me and my co-workers are frustrated with
the overhead and comparative high cost from the 401k
administrator :-(

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"ebtaxbiz" <ebtaxbiz[at]yahoo.com> writes:

- quote -

So true.

And as for the specifics of the original poster's question,
he should keep in mind that Congress apparently never
conciously enacted what we think of when we think of the
modern 401(k).

- quote -

401(k) is really more of a loophole in (or at least an
somewhat unintended consequence of) the Code's treatment of
profit-sharing plans.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Having worked in CPA firms as a retirement and tax
specialist, I can tell you one thing for sure: you will be
frustrated if you attempt to understand the reasons behind
anything Congress does. Your question implies to me that
you think Congress acts rationally. But we know Congress
acts based on political expediency.

There has never been a significant lobbying force saying
that individuals without retirement plans from a business
should be able to sock away more money. In fact the
opposite has happened in a way, because of the income limits
they put on tax deductibility of IRA contributions.

Way back when 401(k) deferrals were limited to $7,000, other
types of defined contribution retirement plans allowed up to
$30,000 in contributions from the employer (or 25% of
compensation). So over time the 401(k) salary deferral
limits were increased to reduce some of this descrepancy.
Also, over the last 10 years there's been a shift on the
part of employers: more and more employers have shifted the
cost of retirement savings to the employees. Thus the
higher limits are needed for employee deferrals since the
employer's not putting in much anymore (if anything).

That's about all I can say as to the history and reasons for
what we have. Overall, our national "system" for
retirement/pension plans was never thought out in advance
and is an inadequate patchwork of laws that provide tax
incentives and that's about it.

Hope that helps,
EBT

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I think both plans were geared at encouraging long-term
savings of 15%. The IRA was meant for someone not working
for a major employer and not self-employed, and probably in
a lower income range. Theres been a factor of four
differential back to the 1980s when ceilings were $8K and
$2K respectively. Its fairly easy to calculate if one saves
15% for 30 years in semi-aggressive investments, you can
generate the 40-60% of replacement retirement needed beyond
social security.

Some in Congress worry about cutting revenues and increasing
the deficit. Delaying taxes on 15% of ones income for up to
fifty years was a fairly sizeable revenue hit, so most
deductions have ceilings. Rather than have the current dozen
some defered tax accounts (health school, IRAs etc), many
of would prefer a single, sizeable, general account, say
20-25% of income for tax simplication purposes. The current
adminstration mentions this proposal now and then but hasnt
really pushed it.

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Pardon me if this has already been covered in any FAQ or
discussion. I searched around but was not able to get an
answer yet.

Considering traditional IRA with pre-tax money, IRA has a
maximum of $4000 contribution limit, while 401(k) is at
$15000. 401(k) is company sponsored and most of the times
company does matching, which is a big plus when one consider
which one to choose.

However, in case where company does not offer matching, to
me the two plans pretty much offer the same tax benefits. As
a matter of fact, 401(k) is probably a worse choice since
(a) i have limited choices of funds i can invest, (b)
because of (a), i am usually stuck with higher fees from the
funds, and (c) company actually has to pay for the
administration. Yet I still have to stick with 401(k) if I
want to contribute more than $4K.

I am just curious what's the history and reasons behind this
causing the discrepancy (and why nothing is being done)? To
me it seems it makes sense to have the same limits for both
types of funds. If given the choice, I would rather put my
money in IRA where I have more controls and pay less.

Anyone can shed some lights???

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