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Greetings, golfingfool, and welcome.

<<Thanks for the enlightenment Rick,,,, the info you gave was insight to me... that wasn't explained to me (the $25K limit on deducting both the IRA and 401K).... like i said in the post.. i bow to the more experienced <G> >>

I'm glad you found this old thread on IRA contributions and are learning some new things about tax deferred accounts. But take caution as you do. The $25K limit referred to in this case dealt with a single person's ability to exclude contributions to an IRA from income when that person is covered by a qualified retirement plan through employment. The rules are different for married couples. In a marriage, only one person has to be covered by a qualified retirement plan for the rules to apply, and the phaseout range for contribution deductibility is also different. These are the rules concerning the deductibility or IRA contributions for those covered by a qualified retirement plan through work:

For a single taxpayer, up to $2,000 is deductible if AGI is $25,000 or less; part is deductible between an AGI of $25,001 and $35,000; and none is deductible when AGI exceeds $35,000. For a married IRA owner filing jointly with a spouse, a contribution of up to $2,000 is deductible if AGI is $40,000 or less; part is deductible between an AGI of $40,001 and $50,000; and none is deductible when AGI exceeds $50,000.

That said, I'll also note that regardless of the deductibility of IRA contributions, any single person or married couple with wage income can always contribute up to $2K per year per person to an IRA. While the IRA contributions we make may be non-deductible, any earnings that money makes is allowed to accumulate within the IRA untaxed until funds are withdrawn from the IRA at some point in the future.

For most of us, at least part of an annual contribution to an IRA is non-deductible. That means we make those deposits with money on which we have paid taxes. When we make such contributions, the IRS requires us to file Form 8606 with our tax return for that year to report them. We should keep a copy of that form as well as the Form 5498 or statement showing the contribution(s) we get from the IRA custodian. Many years hence, when we begin withdrawing money from the IRA, those documents will prove we made after-tax contributions. Consequently, part of the IRA withdrawal will come back to us untaxed to represent the return of those previously taxed deposits. The rest of the withdrawal will be taxed, and represents the earnings that accumulated tax deferred through the years. The Form(s) 8606 and custodian statements make the job of computing that split much easier to do, and they also prove we made the after-tax IRA deposits. Without them, both tasks are extremely onerous.

For those interested in establishing an IRA, I suggest you get and read IRS Pub 590 (Individual Retirement Arrangements) in which all of these issues are explained. You may obtain a copy by calling the IRS at 1-800-TAX-FORM or download it at their website, which can be found at

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