401K vs IRA maximum annual contribution limit difference

Thanks for all the replies! I agree with most of your observations (especially the ones on our beloved Congress :-) As I mentioned before, considering most companies do matching, for most people 401K is just the logical choice since they get more out of it, so the discrepany is really not a big deal for the majority, and thus it will never be a hot issue that Congress will bother with. On the other hand, it just seems so simple and logical to me to have both retriement plans sync up their ceiling. I guess I am one of the minority who actually does worse since my company is not doing matching, and me and my co-workers are frustrated with the overhead and comparative high cost from the 401k administrator :-(

You seem to be assuming that you have to choose one or the other, so they should be comparable. But since you can have

*both* a 401k and an IRA, why should they be similar?

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

*** PLEASE don't copy me on replies, I'll read them in the group ***

I am referring to traditional IRA, not Roth IRA. My understanding is that once you contribute with pre-tax money to 401K (let's say max out at $15K), you are not eligible for contributing pre-tax money to IRA. However, I think you would be allowed to contribute up to $4K to IRA if you elect not to participate in 401k. So if my above interpretation is correct, then traditional IRA and 401k are indeed exclusive with pre-tax money.

You misunderstand. Coverage by the 401(k) does make deductibility of traditional IRA contributions subject to the AGI phaseouts, but it doesn't preclude them.

-- Phil Marti Clarksburg, MD

That's incorrect.

The amount of money you contribute to a 401(k) has nothing to do with the amount of deductible contributions that can be made to a traditional IRA:

• First off, if your income is low enough, your full trad IRA contribution is deductible no matter how much you (and/or your employer) contribute to your 401(k).

• Second, if your income is high enough and you "participate" in a 401(k), some/all of any trad IRA contribution will be non-deductible. However, that has nothing to do with how much you and/or your employer contribute to the 401(k). Just "participating" in the 401(k), even if you make no contributions at all, will activate the deduction limitation rules.

It's not and they aren't.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

So am I.

But you can still contribute to an IRA, it just won't be deductible, i.e. it will be post-tax rather than pre-tax.

Actually, the restriction applies if you're covered by a

401K (or some other qualified retirement plan), regardless of whether you choose to contribute, and only if your income is above a threshold.

True, but why should we restrict the discussion to pre-tax? I contribute to my 401K and also max out my traditional IRA contribution. In years when I'm eligible I contribute to a Roth IRA instead of traditional.

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

*** PLEASE don't copy me on replies, I'll read them in the group ***