I am under 50, so my 401(k) contributions are capped annually at $17,000. My company matches 4% of my salary. Does that amount count toward the $17,000 cap? Also, can I save an additional $5,000 annually in a Roth IRA, or would that amount be under the cap as well? Can my wife do the same? ? Brian B.
Good news: Your employer's matching contribution does not count toward the $17,000 cap, so you could end up with more than $17,000 in yearly contributions if you defer enough to get the full match. "Once you reach age 50, you may also make an additional $5,500 in contributions per year," says Constance Stone, a financial planner in Chagrin Falls, OH.
The Roth IRA is a separate animal as well, but there are qualifications. "As long as your joint modified adjusted gross income is below $173,000 in 2012, you can each contribute $5,000 to a Roth IRA, in addition to your employer-sponsored plans," says Jay Hutchins, a financial planner in Lebanon, N.H. Between $173,000 and $183,000, the amount you can contribute is reduced, and if you make $183,000 or more, you cannot put money in a Roth.
Putting money into both a 401(k) and a Roth is a smart tax move if you can do it. If you save all of your retirement money into tax-deferred accounts such as your 401(k), you'll have fewer options in retirement, since you'll have to pay taxes on every penny you withdraw.
? Kate Ashford
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