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<< What is the best way to go here? Continue with the current plan without being able to contribute and simply contribute the $2000 per year (my wife is gainfully employed but has no 401-k plan) to a separate simple IRA? Or if so, would a Roth IRA be more advantageous? >>

I'll leave advice to others, but I want to make sure you understand the law.

You do not have to roll the 401(k) into an IRA in order to make IRA contributions. The two are totally separate. Even if you do roll the 401(k) into an IRA, you are limited to (nonrollover) annual contributions of $2,000.

If you and your wife file a joint return and you have $4,000 in earnings between you in a year, each of you can contribute $2,000 to an IRA for that year.

If you meet the AGI limits for Roth IRA contributions and can afford to forego any allwable deduction for traditional IRA contributions, it seems to me that the Roth is the way to go. As long as you leave the money in place to satisfy the rules, the earnings will never be taxed.

You can get more information in All About IRAs, accessible through the Quick Find dropdown menu in the upper-right corner of this screen.

Phil Marti
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