I'm confused if I should be (or am even allowed to) switching to a traditional IRA instead of a Roth IRA.
Here's my situation:
Salary: almost $60,000 a year
Bonus: up to 10% (normally between 8-9%, lowest ever was 6.5%) -- this can't go to my 401(k)
My company's 401(k) plan only allows employees to contribute up to 25% of their salary to the plan. I don't particularly understand the reasoning:
401(k) plans impose plan limits (ours is 25%) to help pass discrimination testing. Every year, the IRS requires all 401k plans to take a discrimination test to ensure that the plan is equitable to both highly compensated employees and non-highly compensated employees.
So, next year I can send around $15,000 to my 401(k) before the company match. I estimate, that my taxable salary + bonus after 401(k) will be around $50,000.
I'm single with no children. Next year the standard deduction + personal exemption will be $10,300. The 15% bracket ends at $37,450. So, anything above $47,750 will be taxed at 25%.
I'm not really sure about the rules of getting a tax break for a traditional IRA if I am in a 401(k) plan. I can't figure out if I would be able to get a tax break if I used a T-IRA. I have been using a Roth IRA instead. But, looking at my estimates, I have about $2250 in income that will be taxed at 25%.
1) Is it even worth it to waste my time and energy thinking about this?
2) If it is possible for me to get a tax break on a T-ITA, should I put $2250 in one and the rest into a Roth IRA?
I am unfortunately moving out of my HDHP and will be losing my ability to send money to an HSA. There is a prescription I went back on mid-year, and I think a full-year of it will wipe out the tax advantages of the plan. I have switched to a Silver plan because if I need more health care during the year, the HDHP will be a money loser for me.
Now that I actually put my thoughts down, I am thinking that I should just continue going with the Roth. I think having a separate bucket of money that has different tax properties might be better for me down the road.