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Author: cicek Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75530  
Subject: AGI limits for dummies Date: 7/8/2000 11:14 PM
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OK, I really have spent the past 90 minutes trying to find a definitive answer to this question on my own, but I give up, so here goes: I am married and don't usually work (when I do the income doesn't amount to much). My husband's base income is $135,000 this year, but his bonus will probably push him over the magic $150,000 mark. Next year, his base will probably be over that mark by itself. Now, I understand (I think) that if you make over $150K you cannot deduct contributions to your IRA, and you can't have a Roth IRA at all (please correct me if I am wrong). But can you at least have a non-deductible IRA no matter what your income? If I understand all of this right, even if he makes $150K, we can still contribute $4,000 of after-tax money each year to an IRA, and we won't have to pay any taxes on the earnings until we withdraw the money. Right?

Now, to complicate things, I've seen this qualification many times: as long as you are not enrolled in a retirement plan at work. Does a 401K count? We contribute the maximum to my husband's each year.

And, just for fun, let's say that, with a base salary of $135K, we open an IRA, but in future years his salary goes up above $150K. How does this affect our IRA?

I have been to more places on the Fool site than I can list, and have found partial answers to these questions, but if anyone can send me to a place that would give me a definite answer, I would appreciate that as much as your own explanation.
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Author: FoolWAM One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23203 of 75530
Subject: Re: AGI limits for dummies Date: 7/9/2000 12:13 AM
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Here's your answer.

Anyone can contribute to a non-deductible IRA free of AGI limitations or status of company retirement plan.

Also AGI limitiations on IRA's only affect current contributions, not what is already invested.

Alan

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23206 of 75530
Subject: Re: AGI limits for dummies Date: 7/9/2000 6:33 AM
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I suggest you grab a copy of IRS Publication 590 from http://www.irs.gov. In it you will find the following:

1. A couple filing a joint return with $4,000 earned income between them can each contribute $2,000 to SOME kind of IRA.

2. Whether or not one is covered by a pension plan affects ONLY deductibility of traditional IRA contributions.

3. The phaseout range for Roth eligibility is $150K-$160K for a joint return.

I don't know if you'll find it spelled out exactly anywhere, but IRA contributions are looked at year by year. If you're eligible to do something in 2000, you don't have to undo it in 2001 because you're not eligible to do the same thing in 2001. Hope this makes sense.

TMF ExRO
Phil Marti

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23207 of 75530
Subject: Re: AGI limits for dummies Date: 7/9/2000 7:48 AM
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Your other question that wasn't answered, yes, a 401k is a retirement plan. Therefore, your husband's IRA contribution is not deductible. However, you are NOT covered by a retirement plan at work, so your contribution would be deductible.
Best wishes, Chris

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Author: LMally Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23223 of 75530
Subject: Re: AGI limits for dummies Date: 7/9/2000 10:14 PM
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Dear all. Thanks for answering this. I'm a Brit who's husband's been transferred to the US, we're in the same situation and I've been trying to understand all the new rules/terminology!

Just to confirm that I've got this correct.

1)My husband can contribute to his company's SEP to its maximum amount and have full company matching of his contributions.
2)He can also put $2,000 of already taxed money into a non-deductible IRA that will grow tax deferred until we take out the money.
3)He can set up a Spousal IRA of $2,000 for me that is a deductible IRA that will also grow tax deferred.

Please rap on wrists if I haven't been paying enough attention! However, assuming I've got this correct I've three additional questions.

1) What happens if we set up the Spousal IRA and by the end of the year I have found a job? Can we change it into a deductible IRA in my own right?
2) What happens if we get transferred back to the UK or another country? Can we keep these accounts open? If so, can we still add money? We got burned on our UK retirement accounts when we moved so I'm trying to be more Foolish this time!
3) I've been doing some Foolish research and thought about setting one of the IRAs up with the Vanguard S&P 500 index (VFINX) or Vanguard Wiltshire 5000 index (VTSMX) and the other as Vanguard Health Care (VGHCX). Looks like I've got the Vanguard fetish!! Could I buy a mixture of the stock index funds (QQQs, DIA's and SPYs) instead and would this have any benefits/drawbacks? Also, should I consider a non-US fund to balance risk? Any other suggestions on how we invest the money? We have at least 15years before retirement.

Ta very much in advance!!!


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23227 of 75530
Subject: Re: AGI limits for dummies Date: 7/10/2000 7:50 AM
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Greetings, LMally, and welcome. You asked:

<<Just to confirm that I've got this correct.

1)My husband can contribute to his company's SEP to its maximum amount and have full company matching of his contributions.
2)He can also put $2,000 of already taxed money into a non-deductible IRA that will grow tax deferred until we take out the money.>>


It depends on the type of SEP his firm offers. If it is a straight SEP-IRA to which his employer contributes something during the year, then your husband may make a contribution to that SEP or another IRA of only $2K per year. That contribution may or may not be deductible depending on your adjusted gross income for the year. If it's not deductible, then almost assuredly he should use a Roth IRA (again assuming the AGI limits are met for a Roth contribution). OTOH, if his employer has a SARSEP plan, then he may make a contribution to that plan along with his employer. His contribution by itself may not exceed an absolute dollar amount of $10.5K, but it is also limited by a percentage of his compensation. That percentage is 15% of his pay. If 15% is less than $10.5K, then your hubby will be limited to the 15% number. He may still contribute another $2K to an IRA that may or may not be deductible depending on his AGI. For details, see my Foolish Retirement Plan Primer at http://www.fool.com/Retirement/Retirement.htm.

<<3)He can set up a Spousal IRA of $2,000 for me that is a deductible IRA that will also grow tax deferred. >>

Yes, but again that depends on your joint AGI. For details, see our IRA area at http://www.fool.com/money/allaboutiras/allaboutiras.htm.

<<Please rap on wrists if I haven't been paying enough attention! However, assuming I've got this correct I've three additional questions.>>

Consider it done.

<<1) What happens if we set up the Spousal IRA and by the end of the year I have found a job? Can we change it into a deductible IRA in my own right?>>

The IRA will already be in your "own right." However, the contribution may end up being nondeductible if you participate in a retirement plan of that new employer for even one day during the year. Again, see our IRA area.

<<2) What happens if we get transferred back to the UK or another country? Can we keep these accounts open? If so, can we still add money? We got burned on our UK retirement accounts when we moved so I'm trying to be more Foolish this time!>>

You may find that some custodians won't allow any new contributions unless you have a U.S. mailing address.

<<3) I've been doing some Foolish research and thought about setting one of the IRAs up with the Vanguard S&P 500 index (VFINX) or Vanguard Wiltshire 5000 index (VTSMX) and the other as Vanguard Health Care (VGHCX). Looks like I've got the Vanguard fetish!! Could I buy a mixture of the stock index funds (QQQs, DIA's and SPYs) instead and would this have any benefits/drawbacks? Also, should I consider a non-US fund to balance risk? Any other suggestions on how we invest the money? We have at least 15years before retirement. >>

That's a personal decision I'll leave entirely to you.

Regards..Pixy


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Author: cicek Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23346 of 75530
Subject: Re: AGI limits for dummies Date: 7/13/2000 6:08 PM
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Thanks so much for everone who replied - very helpful!

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