401K and Traditional IRA

[managingts]

Is it possible or allowed by law to max out 401k and trad IRA?

Same goes with maxing TSP and trad IRA?

This assumes that the adjusted income falls under the guidelines set by IRS. Ty

[Eliaj]

As I understand it yes, you can max out both an IRA to the cap (~$5500), as well as max out the 401k/TSP to the cap ($18000, + $6000 if you qualify for catch up).

[mindofmush]

As I understand it yes, you can max out both an IRA to the cap (~$5500), as well as max out the 401k/TSP to the cap ($18000, + $6000 if you qualify for catch up).

If you qualify for the catch up, you are allowed to contribute $6500 to the IRA.
And the 2018 401k/TSP limit for your contributions is $18,500, + $6000 over age 50.

If your salary is too high to contribute to a Roth IRA, you can do a backdoor Roth conversion. (The how-to is in a current post on this site.)

[Timber82]

As I understand it yes, you can max out both an IRA to the cap (~$5500), as well as max out the 401k/TSP to the cap ($18000, + $6000 if you qualify for catch up).

If you qualify for the catch up, you are allowed to contribute $6500 to the IRA.
And the 2018 401k/TSP limit for your contributions is $18,500, + $6000 over age 50.

If your salary is too high to contribute to a Roth IRA, you can do a backdoor Roth conversion. (The how-to is in a current post on this site.)

I thought the income limits came into play regarding traditional IRA

[evilanne]

Income limits are different for the type of IRA. For traditional IRA, if you have retirement plan and are contributing max you most likely won't get any tax advantage in contributing to tIRA, therefore Roth is generally better. From https://www.rothira.com/traditional-ira-vs-roth-ira -"Note that if you or your spouse has an employer retirement plan, your ability to deduct contributions may be reduced or eliminated" The table toward the end has a pretty good summary but it doesn't give the phase out threshold for the tIRA. See https://www.irs.gov/retirement-plans/pl ... an-at-work Most tax software will calculate your modified AGI which can be different from your actual AGI depending on your Tax Situation. It gets confusing.

[Timber82]

Yeah now I am confused lol. So I max the TSP, and my wife and I make around 150k combined so I have to do a Roth IRA?

Does limit come into play with post tax or pre-tax dollars?

[evilanne]

It doesn't make sense to contribute to traditional if you get no benefit and given your situation Roth is a much better option IMO. You really need to look at IRS Pub 590-A to determine specific calculations of the mAGI and limits https://www.irs.gov/pub/irs-pdf/p590a.pdf I believe it is post tax, meaning that your traditional TSP contributions that are not included in block 1 of you W-2 are not included in your income for determining if you are within the limits--but I'm not positive about this.

[Timber82]

Yeah that's where I get confused if I max my tsp then we still benefit from traditional if I understand it

[evilanne]

Any tax program or anyone doing your taxes should be able to calculate how much you would be able to contribute to regular IRA or Roth IRA or how to divide it between the two. Based on your income, having Roth still makes more sense as it would give you more flexibility and the ability to manage you taxes when you need to withdraw funds in retirement or when you reach 70.5 and you have no control over your taxable distributions when RMDs kick. Roth doesn't require RMDs. It is your money so you can do whatever you feel is best for your situation.

[Timber82]

Ugh.. 70 such a long time from now lol

[mindofmush]

According to IRS 590A, for 2017 tax year, married filing jointly has a modified adjusted gross income (mAGI) limit of $99,000 to $116,000 for Traditional IRA(tIRA) contributions unless one of the spouses doesn't have a 401k/TSP then the limit is $186,000 to $196,000. (You are still allowed to contribute to the tIRA up to the limit of $5500/$6500 but you are not allowed to claim it for a deduction in 2017 tax year. This contribution is accounted as after-tax money which allows for a tax free Roth conversion later though contributing directly to a Roth IRA makes the bookkeeping much simpler.)

The mAGI limit for Roth IRA contributions for married filing jointly is $186,000 to $196,000.

Yes, very confusing. Read as much as you can stand because the more you know, the more you save.