3 ms·

If there's no match, it's generally advisable to not do this simply BEACAUSE the usually crappy fund selection. You can open your own tax-advantaged IRA.

brk 16y ago
Actually, this year she switched hers to an IRA. The other issue we've run into is that there is some law that says (and I forget the exact details) 401k contributions from the highly-paid employees can't be more than x% greater than the average employee contribution in the company. So if you work someplace where several other people are not doing 401K allocations, you get a "refund" at the end of the year (has happened to both of us).
ydant 16y ago
Which is limited to $5,000 per year at best (if not old enough for accelerated contributions), isn't it? Or am I missing something?
- encoderer 16y ago
  Only Roth IRA is limited to $5k a year.
  - ydant 16y ago
    This doesn't agree with my understanding of the tax code as reported on IRS.gov. For example: http://www.irs.gov/retirement/article/0,,id=202510,00.html http://www.irs.gov/retirement/article/0,,id=202510,00.html: "The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income." Also, this table seems to agree: http://www.irs.gov/retirement/participant/article/0,,id=202517,00.html http://www.irs.gov/retirement/participant/article/0,,id=2025... This is for 2011, but my recollection is that 2010 had identical wording.
willgodfrey 16y ago
Yes, but a 401k has an annual contribution limit of 16.5K while an IRA allows only 5.5K in annual contributions. Ideally, having both accounts would give you 23K of tax-advantaged savings.

brk 16y ago

Actually, this year she switched hers to an IRA. The other issue we've run into is that there is some law that says (and I forget the exact details) 401k contributions from the highly-paid employees can't be more than x% greater than the average employee contribution in the company. So if you work someplace where several other people are not doing 401K allocations, you get a "refund" at the end of the year (has happened to both of us).

ydant 16y ago

Which is limited to $5,000 per year at best (if not old enough for accelerated contributions), isn't it? Or am I missing something?

encoderer 16y ago
Only Roth IRA is limited to $5k a year.
- ydant 16y ago
  This doesn't agree with my understanding of the tax code as reported on IRS.gov. For example: http://www.irs.gov/retirement/article/0,,id=202510,00.html http://www.irs.gov/retirement/article/0,,id=202510,00.html: "The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income." Also, this table seems to agree: http://www.irs.gov/retirement/participant/article/0,,id=202517,00.html http://www.irs.gov/retirement/participant/article/0,,id=2025... This is for 2011, but my recollection is that 2010 had identical wording.

willgodfrey 16y ago

Yes, but a 401k has an annual contribution limit of 16.5K while an IRA allows only 5.5K in annual contributions. Ideally, having both accounts would give you 23K of tax-advantaged savings.