alternatves to 401K

surfergalJune 19, 2007

Just started a new job this month, but not eligible for the new 401K plan for 6 months. Normally I would be putting in my max in my previous 401K, plus max in a Roth IRA. I contributed less than half so far in the 401k from my old job, What options, if any, would be available to me to maintain my (401K)savings for retirement? Is there a max on a non-taxable IRA contributions? Is there a a better option for tax reduction to replace my (pre-tax) 401k saving?

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If you have a 15-20 yr timeline before retirement, contribute up to $4K in 2007 to a Roth IRA. If you are past 50, you can do $5K, but carefully consider how long before you retire, to decide whether to contribute to a Roth or Regular IRA.

If you have already maxed out for 2007 on your IRA contributions, you CAN contribute after-tax money.

However, you need to keep records on how much after tax money is contribute to your IRA **forever**, and I do mean forever. Your fund manager will not be able to ever tell you how much after tax dollars were contributed to a Regular or Roth IRA because they don't separate deposit records in that fashion (any more than a bank would). Once you start drawing out your IRA funds, it is up to you to prove to the IRS that some of that money was after tax dollars, not pre-tax dollars.

Another way to do it would be to start a separate IRA just for after-tax dollars, but that may complicate your recordkeeping. It's up to you how you choose to do it.

    Bookmark   June 20, 2007 at 11:36AM
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jkom, I'm confused. I thought there was a limit to IRA contributions of $4000 a year ($5000 if one is over 50) period. The second sentence in your post sounds like you can contribute more than that amount. Were you referring to making contributions in excess of the amount allowed after taking phaseout for Roth IRAs or traditional deductible IRAs that is based on modified AGI?

To the best of my knowledge and a quick check of one reference, the limit for IRA contributions to Roth IRAs, traditional deductible and traditional non-deductible is the limit you and I previously noted. Contributions in excess of those amounts are penalized at 6%. If you know something I don't, please tell me. I'm always ready to learn.

To the original poster, I don't know of any way to contribute money to a retirement plan outside of your employer other than an IRA. Someone else may have a strategy, but I'm not aware of one.

    Bookmark   June 22, 2007 at 7:14AM
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jlhug, I apologise - you are correct that one cannot make after tax contributions to an IRA. I should have been clearer on this issue. You can, however, make after tax contributions to a 401k (when eligible to contribute, which the OP is currently not) and the entire kit and caboodle can, upon leaving the employers' plan, be rolled into an Individual IRA.

This is where the permanent record keeping of pre-tax and after-tax contributions comes into play.

    Bookmark   June 22, 2007 at 8:17PM
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Thanks - but I guess I am confused again on several points. 1) I do have a separate account for a roth IRA created a few years ago. I was hoping to contribute the max $5k, to my Roth and the max $5K to a reg IRA (after tax), in addition to what i already contributed to my old 401K (which I will be rolling over into an IRA account.) Is there a limit on what the yearly total of the three account contributions can be?

2) Since I was previously putting about 30-35% of my income into my 401K in previous years, trying to get as close to the max as I could, i am worried about a big tax hit this year (6 months of full income with no 401K deductions to reduce it), so was looking for an option to reduce my tax bite.

3) If need to keep all my pre and post tax IRA records, it sounds like I will have a lot to do on retiring in 5-8 years, going thru all my old IRA records (hmmm, about 30 years worth of monthly statements from a variety of companies), I had thought this was true, but apparantly I got some bad advice from an accountant a few years ago, who assured me there was no reason to keep all my various accounts (pension and 401K rollovers, and post and pre tax iras) separate. Argh! such fun to look forward to - but I am pretty sure I saved most everything - got the cardboard boxes to prove it.

    Bookmark   July 2, 2007 at 11:13AM
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Surfergal, you can put a total of $4000 total into IRAs either all in a traditional, all in a Roth or any combination that you choose. The limit is $5000 if you are over the age of 50 but you can still only contribute a total of $5000 to IRAs. You cannot put $5000 in a traditional AND $5000 in a Roth.

Does your employer's 401k plan limit your contributions to a percent of each paycheck?

    Bookmark   July 2, 2007 at 1:55PM
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so far they given me no info on the 401k other than I will not be eligble for 6 months. hopefuly I can contribute the max for Nov and Dec. thx again

    Bookmark   July 7, 2007 at 11:56AM
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