Oh hi! I hope your weekend is going well.
For most of us, there are two pretty great options for making tax-advantaged contributions toward investments for retirement.
Let’s walk through a quick refresher. If you’re eligible:
- Contributions to a traditional IRA are deductible from income for tax purposes, but are subject to tax when taken out in retirement.
- Contributions to a Roth IRA are not deductible for taxes, but are not subject to tax when used in retirement.
Choosing which you contribute to involves your expected marginal tax rate during retirement and other things, but it’s nice to have options.
Unfortunately, there are a couple income limits that apply here. For example, for the 2014 tax year, if you are filing as a single person and are covered by a retirement plan at work:
- If your income (as measured by MAGI) is greater then $90,000, then you cannot deduct contributions made to a traditional IRA
- If your income is greater than $129,000, then you cannot contribute to a Roth IRA
Above those limits, you might as well a taxable account or contribute to a traditional IRA and make a Roth conversion (what some call the Backdoor Roth IRA), but I can discuss those in a later post.
And, of course, because the IRS never likes to make anything simple, it isn’t the case that below these levels you can contribute completely and above them you can’t contribute at all; rather, max contributions are phased out over these income levels. Lame. Anyway, here are all the charts.
If you are not covered by a retirement plan at work and want to contribute to a Traditional IRA
If you are covered by a retirement plan at work and want to contribute to a Traditional IRA
If you want to contribute to a Roth IRA
Again, pretty complex charts, but don’t worry too much about them now as they’ll make lots more sense in a later post. Enjoy the rest of your weekend 🙂