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Subject:  Re: 401k , IRA, ROTH..can I hv all 3? Date:  2/6/2013  11:30 PM
Author:  BruceCM Number:  71355 of 88543

So I have a 401k that I stopped contributing to (my choice) at the end of 2012 but I am still employed by the company.

Can I open a ROTH and or a trad. IRA and still be eligible for the tax shelters they offer?

Yes. Having a 401(k), or any other employer sponsored retirement plan, really has nothing to do with your ability to contribute to your IRA in the same year. What it can do is it may limit your ability to deduct your contribution to your traditional IRA. Here's how it works.

If nothing is contributed to your employer sponsored retirement plan for you in a given year, then you will not be an 'active participant', thus you can deduct your contribution to your traditional IRA regardless of your Adjusted Gross Income. But be careful here. You may not elect to defer any of your salary into your 401(k) plan, but the employer may make a small contribution to the plan based on either 'forfeitures' from others who left the plan prematurely and lost any unvested employer contributions or amounts the employer may use to meet non-discrimination tests for the 401(k). But if even $1 makes it into your 401(k) (or any other plan the employer sponsors), the IRS will consider you an 'active participant'. If so and you are single, then your AGI (note: not your earnings) must be less than $59,000. If your AGI is between $59,000 and $69,000, your TIRA contribution will be phased out. Above $69,000, your TIRA contribution will not be deductible. If you may not deduct your TIRA contribution and your modified AGI is less than $112,000, which it sounds like yours is, then it would make more sense to contribute to a Roth than to a non-deductible TIRA.

In addition to the above comment on a deductible TIRA vs. a Roth IRA, another difference is that with the Roth you don't have to take minimum required distributions at age 70.5....and this can be important if you get to 70.5 and you don't need the income from the IRA.

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