Per the commenters on my dental financing post, I needed to look into IRA contributions more carefully. Without getting too specific about what I make in income, I am hitting to the phase out point. Over the last few years, the contribution rules have changed and apparently, I’m behind the times. I needed to do some more research on the rules.
It turns out that my AGI will be well over the 2007 Single Filer limit for IRA deductibility, which is an AGI of $52K. WOW. I have totally not been paying attention. Even if I was maxing out my 401k contribution, I don’t think I’d be under $52K. Investopedia has a nice chart with the 2007 IRA contribution limits. Scroll to the bottom to read the table.
I also found this IRA contribution calculator at Smart Money and when I punch in my info, it tells me that I can no longer deduct Traditional IRA contributions. I am left with ROTH IRA contributions only. Bummer.
Why is this a bummer? Well, I’ve put $900 into a Traditional IRA account for some stock market mad money. Now I know, I can’t keep adding to that account and get a deductible benefit. So there’s no point in having Traditional IRA accounts anymore. Nuts. Welcome the world of great income, Mapgirl. GOOD JOB!
I am now stuck holding two low value Traditional IRA accounts and I think I should consolidate them by closing my stock trading account and roll it into the existing Fidelity account I have. I am going to have to think about this since I would be selling stuff off at a serious loss. I wish I had thought about this earlier in the year, I would have closed the stock account sooner before this summer’s wacky performance.
Everything is a mixed blessing in this world. Now I know. I have to open a Roth IRA.
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{ 8 comments… read them below or add one }
Is this what I have to look forward to? Constantly having to read and keep up with tax laws and deferred compensation guidelines, and rising income making my finances more complicated? Sheesh.
Have fun opening that Roth!
Perhaps you could roll your traditional IRA into a Roth? I am not sure if tha is the best approach, but something to look into.
There are income limits for Roths, but it is about 99k… If you are over that, great work! =)
Now I’m thoroughly confused. I switched jobs half way through the year and won’t be eligible for my new 401(k) until 2008. But I did participate in my previous employer’s 401(k) until June. I thought I was being smart and opened up an IRA, putting contributions that would have been going to a 401(k) in there every paycheck. But are these contributions now NON-tax deductible? Does it matter that I can’t contribute to a 401(k) now but I could previously? Or am I hosed because of the old 401(k)? My AGI is about 57K.
Bri – Yes, if your AGI is going over $52K this year, it sounds like your contributions will not be deductible. But make sure you check your AGI. Your 401K contributions should not be included in that number. It helps to have a copy of a 1040 tax form in front of you to understand the AGI.
I’m not an expert, but I think IRAs can be rolled over into Roths. They just can’t roll back.
Mapgirl, are you saying that you’ve already contributed to an IRA earlier this year? If so, you can probably “recharacterize” the contributions as a Roth IRA. Even if the funds are commingled with prior year contributions to a traditional IRA, you can do something similar by rolling the IRAs over into a Roth. (I’m not sure if the commingling disallows recharacterization or not.)
Unlike me, who just rolled over my old job’s 401(k) into a Roth earlier this year, your taxes probably won’t be too painful on that rollover since I’m guessing you made the contributions on money that has already had taxes withheld anyway.
I strongly advise almost anyone who meets the income test to contribute to Roths if possible. It’s true that you don’t get the tax deduction now, but the long-term benefits of tax-free earnings are worth it. You’ll thank yourself in thirty years (or your heirs will – they too get tax-free withdrawals if you don’t live to spend it yourself). I’m going to miss the Roth a great deal once I no longer qualify.
I’m lazy with my contributions and don’t make them until the next year. My income can be very volatile so I don’t know what I qualify for or not.
Though I’m suprised that you weren’t investing in the Roth ahead of the traditional. I like the flexibility of the Roth better.
Thanks for the comments. You must understand these accounts were opened before Roths existed or well understood, so I’ve always had them.