IRA and Roll Over IRA


L

learnfpga

I work for a company that offers 401K. I am qutting the job and moving
to a different company . I plan to roll over the 401K into traditional
IRA. I am married and I file jointly with my wife. My wife does not
participate in her 401K plan. (Too expensive loads on the funds)

My Q is when I roll over my current 401K can I add $4000 as wifes IRA
contribution and take a tax deduction on that for year 2007? Or is the
traditional IRA acct separate from roll over IRA acct? We have a joint
accout at the brokerage where I plan to roll-over IRA.

Thanks in advance
 
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W

wyu

My Q is when I roll over my current 401K can I add $4000 as wifes IRA
contribution and take a tax deduction on that for year 2007? Or is the
traditional IRA acct separate from roll over IRA acct? We have a joint
accout at the brokerage where I plan to roll-over IRA.
No in two ways.

1) IRAs are individual accounts only. You have your IRA, your wife has
hers. No intermingling.

2) Your wife cannot make a tax deductible contribution to her IRA
because her workplace offers a retirement plan unless you two meet
rather strict income requirements. Whether she chooses to participate
or not, she still is considered "covered" by the 401K. (If her company
makes a mistake and forgot to mark the "401K yes" box on her W2, you
can get away with it until such time you are ever audited.)
 
P

PeterL

I work for a company that offers 401K. I am qutting the job and moving
to a different company . I plan to roll over the 401K into traditional
IRA. I am married and I file jointly with my wife. My wife does not
participate in her 401K plan. (Too expensive loads on the funds)

My Q is when I roll over my current 401K can I add $4000 as wifes IRA
contribution and take a tax deduction on that for year 2007? Or is the
traditional IRA acct separate from roll over IRA acct? We have a joint
accout at the brokerage where I plan to roll-over IRA.

Thanks in advance

You cannot have a join IRA account. Each IRA account belongs to one
individual, thus the name Individual Retirement Account.
 
D

Dave Dodson

My wife does not
participate in her 401K plan. (Too expensive loads on the funds)
Even with high loads, if your wife's company matches part of her
401(k) contribution, it probably still is worthwhile for her to
contribute enough to capture the maximum match. That "free money" will
overcome a lot of negatives.

Dave
 
E

Elizabeth Richardson

Even with high loads, if your wife's company matches part of her
401(k) contribution, it probably still is worthwhile for her to
contribute enough to capture the maximum match.
And if not participating in her 401k means she's not saving anything at all
for retirement, well that's not a good thing either. Open up a Roth, at
least, if she can put $4k away this year. Then continue to fund it every
year. No, you won't get the tax deduction for it now, but it will still grow
tax deferred, and then, of course, tax free when it comes time to live off
it.

Elizabeth Richardson
 
K

kastnna

I work for a company that offers 401K. I am qutting the job and moving
to a different company . I plan to roll over the 401K into traditional
IRA. I am married and I file jointly with my wife. My wife does not
participate in her 401K plan. (Too expensive loads on the funds)
Eveyone else very accurately answered our original question so I won't
rehash it.

But is there a company match on our wife's 401k? If so, it's hard to
imagine loads, fees, or expense ratios would outweigh the immediate
benefit of the company match.
 
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M

Mark Freeland

because her workplace offers a retirement plan unless you two meet
rather strict income requirements. Whether she chooses to participate
or not, she still is considered "covered" by the 401K.
If no contributions are made in a defined contribution plan, the employee is
not "covered" by the plan, and is not an "active participant" in the plan.
From Pub 590: "Defined contribution plan. Generally, you are covered by a
defined contribution plan for a tax year if amounts are contributed or
allocated to your account for the plan year that ends with or within that
tax year. "
http://www.irs.gov/publications/p590/ch01.html#d0e1996 ("Are you covered by
an Employer Plan?")
From the instructions for W2s:
"Generally, an employee is an _active participant_ if covered by (a) a
defined benefit plan ... or (b) a defined contribution plan (for example, a
section 401(k) plan) for any tax year that the employer or employee
contributions (or forfeitures) are added to his or her account."
http://www.irs.gov/instructions/iw2w3/ch01.html#d0e2803

However, there is another rule - one's IRA contributions are limited if
EITHER one or one's spouse is covered (an active participant). It is this
rule (and not the mere existence of the wife's defined contribution plan)
that probably limits her ability to contribute to a deductible IRA. If the
OP contributed to _his_ 401(k) this year, then he was covered, and thus his
wife, though not covered, is still unable to contribute.
http://www.irs.gov/publications/p590/ch01.html#d0e2185 (Pub 590, again)

Mark Freeland
(e-mail address removed)
 
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W

wyu

If no contributions are made in a defined contribution plan, the employee is
not "covered" by the plan, and is not an "active participant" in the plan.
Looking through Form 590, it appears you are right. However, I've read
many past complaints where people don't participate in their company
401Ks still get box 13 checked on their W2 disqualifying them from
making deductible IRA contributions. I suspect the real answer is
their payroll departments are too lazy to fix/reissue W2s and they
just needed to get tough and raise holy hell.
 

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