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Yo, Playwright.

<<1. I have a 401k presently. Does this preclude me from opening an IRA, as a woman at a party told me? Never mind what kind of party.

2. If answer to #1 is 'no,' then I want to open an IRA before year end. Is it common to hold both types of account?

3. Given the 401k, am I correct assuming I cannot deduct IRA contributions on taxes, and that my account would be called an after-tax account?

4. What amount of taxes might I be expected to pay on IRA contributions this year (would invest $1500 to $2000)?

5. When I roll it over into Roth IRA in January, for Foolish 4, will it cost me there too?>>

Anyone with wages who is younger than age 70 ½ may open an IRA and contribute up to $2K (less if they don't earn that much) to that account. The fact you are in a 401k only affects your ability to defer that contribution from income, not your ability to make it. And yes, many folks do open an after-tax IRA. Your contribution could be a deductible IRA, an after-tax IRA, or a combination of the two.

If you are single and have an Adjusted Gross Income (AGI) of $25K or less, your entire contribution is deductible; part will be deductible between an AGI of $25K and $35K; none will be deductible if your AGI exceeds $35K. For a married couple filing jointly, that range is $40K to $50K. Get IRS Pub 590, Individual Retirement Arrangements, to get the details. To do so, just call 1-800-TAX-FORM or visit the IRS website at to download the document.

As to taxes, if the contributions are not deductible, they will be taxed at your ordinary rate. If you roll this IRA to a Roth in 1998, you will pay taxes based on previously untaxed contributions and all earnings in the traditional IRA. Your after-tax contributions will not be taxed again. BTW, whatever is determined to be taxable in 1998 must be declared as income and be taxed over four years, so one-fourth will be taxed in 1998, another fourth in 1999, etc. You won't be able to pay the taxes all at once even if you want to. As to how much the tax will be, again it depends on your tax rate at that time.


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