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Aah, all the reading has had me throughly confused! Before I enter the dreamworld, can I have both a 401k and an IRA account?
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Aah, all the reading has had me throughly confused! Before I enter the dreamworld, can I have both a 401k and an IRA account?

Yes. But depending on your income, you may not be able to deduct contributions to a traditional IRA or contribute at all to a Roth. Everyone with earned income can make non-deductible contributions to a traditional IRA.

--Peter
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Here's what confuses me: I keep reading you can deduct a traditional IRA contribution (up to $2000) if you're not covered by a retirement plan at work.

What does that mean? I had a 401k option for part of last year, but didn't participate in it. We also have an ESOP plan here, which I have money in, but it's money distributed from company profits, not from me investing in it. So, can I make an IRA contribution and deduct it from my 2001 taxes?

gb
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I keep reading you can deduct a traditional IRA contribution (up to $2000) if you're not covered by a retirement plan at work.

A simplification, but it's very nearly correct. If you are covered by a retirement plan at work, the income limits for deductibility are much much lower. For most white-collar workers the statement is likely correct.

What does that mean? I had a 401k option for part of last year, but didn't participate in it.
You were eligible to participate in it, thus you were "covered". Whether you can deduct or not depends on your adjusted gross income.
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gb writes:

Here's what confuses me: I keep reading you can deduct a traditional IRA contribution (up to $2000) if you're not covered by a retirement plan at work.

What does that mean? I had a 401k option for part of last year, but didn't participate in it. We also have an ESOP plan here, which I have money in, but it's money distributed from company profits, not from me investing in it. So, can I make an IRA contribution and deduct it from my 2001 taxes?


If you participate in a qualified retirement plan on just one day in the year, you are considered a participant for the entire year. Participation means you make or your employer makes a contribution to the plan on your behalf. It does not mean "eligibility" to participate as mentioned by another poster. It means you and/or your employer made a contribution to that plan on your behalf. And if you did participate, then (as the other poster mentioned) that means you may find your ability to take a tax deduction for a contribution to a traditional IRA is limited. For details on those limits, see our IRA Area at http://www.fool.com/money/allaboutiras/allaboutiras.htm and IRS Publication 590 (Individual Retirement Arrangements) available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

BTW, an ESOP is a qualified retirement plan as is the 401k. Therefore, if you or your employer made a contribution on any day to the ESOP or the 401k, you are considered a participant for the entire year.

Regards..Pixy
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I have that same question. If I DO participate in a qualified employer sponsored retirement plan I can ALSO make a **tax deductible** contribution to a traditional IRA (so long as my AGI is not too high)??? Can it be?
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Greetings, ldbktg, and welcome. You asked:

I have that same question. If I DO participate in a qualified employer sponsored retirement plan I can ALSO make a **tax deductible** contribution to a traditional IRA (so long as my AGI is not too high)??? Can it be?

Yes, it can be. If you are a single filer who participates in a qualified retirement plan at work, you may still make a fully deductible contribution to a traditional IRA provided your adjusted gross income this year is $34,000 or less. Between an AGI of $34K and $44K, you may make a partially deductible contribution. Above $44K, no deduction is allowed. The phase-out range for those who are married and file jointly is $54,000 - $64,000 this year.

For full details, see our IRA area at http://www.fool.com/money/allaboutiras/allaboutiras.htm and IRS Publication 590 (Individual Retirement Arrangements) available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy
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