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Navigating the retirement savings maze

Chris Farrell Jun 20, 2011

Question: I have a question about Retirement Contributions. Is there a single resource that tells you how much individuals can contribute to all the different retirement accounts (401K, IRA, Roth, etc.)? Currently, my husband and I are both maxing out our TSP (we are federal government employees) contribution at $16,500 each year. In previous years, we had also been maxing out our Roth IRAs, but we no longer qualify for a Roth IRA due to income limits. Can we contribute to a regular IRA in addition to our TSP contributions? I’ve read online that yes we can, and no we cannot. I heard you on Marketplace this morning talking about how we should all think about contributing more to our retirement. I just wish the mechanics of doing so wasn’t so confusing! Thanks for all your advice on the show and the Getting Personal blog! Erin., Rockville, MD

Answer: I wish the rules weren’t so confusing, either. It’s a disgrace. We know that America’s population is aging and we need to be saving more. Yet our retirement savings system is balkanized with 401(k)s for the private sector; 403(b)s for non-profits; 457s for state and local government employees; SEP-IRAs and sole-401(k)s for the self-employed; IRAs and Roth-IRAs; and so on. The rules vary, too. For instance, the maximum a worker can put into a 401(k) is $16,500. For a homemaker with an IRA it’s $5,000. Go figure. Why not just one set of rules for everyone?

As for whether you can contribute to an IRA when you’re covered by an employer’s retirement plan depends on your modified adjusted gross income (MAGI). For a married couple filing jointly in 2011 you can make a full contribution if your MAGI is $90,000 or less; a partial contribution with an income more than $90,000 but less than $110,000; and no contribution if income is more than $110,000.

The comparable numbers for single filers are $56,000 or less; more than $56,000 but less than $66,000; and $66,000 or more.

I find it’s also easy to go to one of the major mutual fund companies such as Fidelity, Vanguard, and T. Rowe Price, as well as Internet based tax-sites like Turbotax and Fairmark to get good information on IRA contribution limits and qualifying rules. (Fairmark is particularly good on the Roth-IRA.) They update their information for each tax year and new legislation.

Smart Money has a helpful IRA contribution calculator. You plug in some numbers and you can see what are your IRA options.

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