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What is the maximum that I can contribute to my IRA and 401(k) annually?


An employee can contribute up to $16,500 a year into a 401(k) via so-called elective deferrals, in which the employer pays the amount of salary that the employee requested (that’s what makes the deferrals elective) directly into the plan, reducing the employee’s paycheck commensurately. Employees who are more than 50 years old can contribute an additional $5,500, for a maximum of $22,000. These amounts are tax deductible and are in addition to however much the employer kicks in on behalf of the employee. It’s a good deal, but there’s one catch that you should be aware of: You have to make the election to defer salary before payday. You can’t decide on Dec. 31 that you want to contribute $16,500 to your plan for the previous year.
The maximum individual retirement account, or IRA, contribution is $5,000 a year, with an additional $1,000 for those older than 50, although there is a cap of 100 percent of salary, so someone who earned only $4,000 last year, for instance, can contribute that much, not $5,000. When it comes to deducting IRA contributions from taxes, things get tricky. If you are also covered by a 401(k) or a similar plan at work, you can only take the full deduction if your annual adjusted gross income, with some further adjustments that you can find in IRS Publication 590, is $56,000 or less if you’re single or $90,000 if you’re married. If your modified AGI, as the IRS calls it, is between those respective amounts and $66,000 or $110,000, you can take a partial deduction, and if you earn more, you get no write-off at all.
-Conrad de Aenlle