Start IRA account?

[metroplex]

I've been working out my taxes and it looks like I can stick in $3,000 into a traditional IRA and get an IRA deduction for FY2004 as long as I do this before April 15, 2005.

If I put in $3,000 into the IRA, I can get back an extra $800 (total) from the Feds and State.

What do you think?

My employer has a retirement plan (checked on W-2) but I think I just need to fill out US Form 8606.

I keep reading that if the employer participates in a retirement plan (like a 401k), your IRA deducitibility is decreased but the actual cap is not shown anywhere. I've been trying to find this # but haven't been successful.

[dwasson]

Always do the IRA. It will keep you from working at Burger King after "retirement".

[metroplex]

Turns out Pub 590 explained the amount of deduction if your employer has a retirement plan.

I made an Excel spreadsheet to check the amount of return I'd get vs the amount I put into an IRA... and if I put in $200 I will not owe Michigan anything but I won't get anything back. Obviously the more I put into the IRA will result in me getting more back... up to the $3,000 cap they put for FY 2004 (FY 2005 is $4,000).

Should I:
Just put the bare min. into an IRA ($300) just so I don't have to pay Michigan anything? Or should I go the full $3,000? It looks like I'll have to pay taxes on the earned interest for next year from the IRA.

Dwasson: Are you allowed to contribute to a TSP? I figured they'd give the contractors some of the same benefits?

[MM03MOK]

Table 1-2. Effect of Modified AGI <SUP>1</SUP> on Deduction If You Are Covered by a Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

<TABLE style="BORDER-RIGHT: 0.5pt solid; BORDER-TOP: 0.5pt solid; BORDER-LEFT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid; BORDER-COLLAPSE: collapse" width=390 border=0><COLGROUP></COLGROUP><TBODY><TR style="BORDER-BOTTOM: 0.5pt solid"><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>IF your filing


status is ...

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>AND your modified adjusted gross income (modified AGI)


is ...

</TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>THEN you can take ... </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center rowSpan=3>single or


head of household

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>$45,000 or less </TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a full deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>more than $45,000


but less than $55,000

</TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a partial deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>$55,000 or more </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>no deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center rowSpan=3>married filing jointly or


qualifying widow(er)

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>$65,000 or less </TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a full deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>more than $65,000


but less than $75,000

</TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a partial deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>$75,000 or more </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>no deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center rowSpan=2>married filing separately <SUP>2</SUP></TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>less than $10,000 </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>a partial deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid" align=middle>$10,000 or more </TD><TD align=middle>no deduction. </TD></TR></TBODY></TABLE>


<TABLE style="BORDER-COLLAPSE: collapse" width=390 border=0><COLGROUP></COLGROUP><TBODY><TR><TD><SUP>1</SUP> Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI), later.


<SUP>2</SUP> If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status).

</TD></TR></TBODY></TABLE>

Table 1-3. Effect of Modified AGI <SUP>1</SUP> on Deduction If You Are NOT Covered by a Retirement Plan at Work

If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

<TABLE style="BORDER-RIGHT: 0.5pt solid; BORDER-TOP: 0.5pt solid; BORDER-LEFT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid; BORDER-COLLAPSE: collapse" width=390 border=0><COLGROUP></COLGROUP><TBODY><TR style="BORDER-BOTTOM: 0.5pt solid"><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>IF your filing


status is ...

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>AND your modified adjusted gross income (modified AGI) is ... </TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=bottom>THEN you can take ... </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center>single,


head of household, or
qualifying widow(er)

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>any amount </TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a full deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center>married filing jointly or separately with a spouse who is not covered by a plan


at work

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>any amount </TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a full deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center rowSpan=3>married filing jointly with a spouse who is covered by a plan


at work

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>$150,000 or less </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>a full deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" align=middle>more than $150,000


but less than $160,000

</TD><TD style="BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>a partial deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>$160,000 or more </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>no deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center rowSpan=2>married filing separately with a spouse who is covered by a plan


at work <SUP>2</SUP>

</TD><TD style="BORDER-RIGHT: 0.5pt solid; BORDER-BOTTOM: 0.5pt solid" vAlign=center align=middle>less than $10,000 </TD><TD style="BORDER-BOTTOM: 0.5pt solid" align=middle>a partial deduction. </TD></TR><TR><TD style="BORDER-RIGHT: 0.5pt solid" vAlign=center align=middle>$10,000 or more </TD><TD vAlign=center align=middle>no deduction. </TD></TR></TBODY></TABLE>

<TABLE style="BORDER-COLLAPSE: collapse" width=390 border=0><COLGROUP></COLGROUP><TBODY><TR><TD><SUP>1</SUP> Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI), later.


<SUP>2</SUP> You are entitled to the full deduction if you did not live with your spouse at any time during the year.

</TD></TR></TBODY></TABLE>

[gpfarrell]

If you're 59 you qualify for a "catch-up" provision and can put $3500 in for 2004, and $4500 in for 2005.

Taxes are never straightforward, but this is worth the headache if it keeps you on the good side of the Burger King drive thru!

[hdwrench]

Always do the IRA. It will keep you from working at Burger King after "retirement".
ill be lucky to live that long

[dwasson]

ill be lucky to live that long

So true. I'm the classic illustration of the saying, "If I had known I'd live this long I would have taken better care of myself." Oh well, at least my wife and her new boyfriend will live well.

[JamesHecker]

If your employer has a 401k plan and matches any part of your contribution, this is where you should put as much as you can first. At least up to the maximum that your employer matches. Make sure you carefully select how your contribution and the match is allocated. Be careful not to have too much of your retirement in your company's stock, no matter how well you think it will do. (Can you say Enron?)

If after maximizing your 401k contributions you still have money you can put away for retirement, you might want to take a good look at a Roth IRA.

A Roth IRA uses after tax money (you do not get a tax deduction for it), but the growth and withdrawals are tax free in retirement. The tax savings in retirement can be far more than at the time of contribution if your plan is consistantly implemented.

[metroplex]

I checked around and most banks want a maintenance fee (annual) for an IRA account. :(

[Bradley G]

At your age , what's the hurry?:run:

Bradley G


I've been working out my taxes and it looks like I can stick in $3,000 into a traditional IRA and get an IRA deduction for FY2004 as long as I do this before April 15, 2005.

If I put in $3,000 into the IRA, I can get back an extra $800 (total) from the Feds and State.

What do you think?

My employer has a retirement plan (checked on W-2) but I think I just need to fill out US Form 8606.

I keep reading that if the employer participates in a retirement plan (like a 401k), your IRA deducitibility is decreased but the actual cap is not shown anywhere. I've been trying to find this # but haven't been successful.

[jerrym3]

My company has a 401K plan, so I do not get a taxbreak on any IRA contributions. (Although I do max out my 401K contributions and still add to my IRA.)

However, if your spouse doesn't work or have a company plan, you can still get the IRA tax break for him/her.