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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: MrGville on October 28, 2016, 07:13:20 AM

Title: Income Limits for deducting both 401k and trad. IRA cont. from taxes....
Post by: MrGville on October 28, 2016, 07:13:20 AM

I just read an article about how it may not be possible to get tax benefits from maxing out your 401k and trad. IRA if you make above a certain income.  I do not fully understand how this works and would appreciate any guidance.  Next year, my current fiance (will be wife by next year) and I were planning on maxing out her 401k and both of our trad. IRAs.  I will earn about $58k and she will earn about $40k. 

Should we reallocate the money we were going to put into our trad. IRAs into another account?  Or are we below the income limit?  Should we file our taxes separately? (Not sure if filing separately would make a difference).

Thanks!

Title: Re: Income Limits for deducting both 401k and trad. IRA cont. from taxes....
Post by: MrGville on October 28, 2016, 07:24:17 AM

I am happy to provide more information if necessary for any responses.

Title: Re: Income Limits for deducting both 401k and trad. IRA cont. from taxes....
Post by: terran on October 28, 2016, 07:30:06 AM

The IRA deduction limit for married filing jointly in 2016 if both spouses are covered by a retirement plan at work is a Modified Adjusted Gross Income (MAGI) of $98k (will be $99k for 2017). Since 401k contributions (among other things) will reduce your MAGI below your gross income you will be well below the limit, so you should be good. The one "tricky" thing to remember in the future is that IRA contributions DO NOT reduce MAGI, so you need to be below the cap before contributing.

See limits here https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

See information about how to figure out your MAGI here https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/What-Is-the-Difference-Between-AGI-and-MAGI-on-Your-Taxes-/INF22699.html

Title: Re: Income Limits for deducting both 401k and trad. IRA cont. from taxes....
Post by: MrGville on October 28, 2016, 07:44:21 AM

Thanks for the information, terran.  Very helpful!