Max Contributions to 401(k), IRA, Roth IRA?

[Guest maf]

I'm 43 and just landed a new job making more than I ever have (little under $110k yr). I'm starting late, (never saved before) so I want to catch up as quickly as possible. 2 questions:

1. If I contribute the max ($14k) into my 401k, can I still open and contribute the max into either a traditional IRA or Roth IRA? Someone said I couldn't.

2. My compensation pkg is: $85k yrly, $15k yr end bonus and $3k "profit sharing" employer contrb to my 401k. They do not match my contributions. So what is the best way to maximize my investing? Put the max in 401k ($14k - i.e. most of my yr end bonus) plus max ($4k) in Roth IRA and whatever else I can into taxable funds? Or because long term capital gains tax is only 15% would it be better to contribute more into taxable funds rather than max in 401k?

Thanks!

[John G]

The answer to your questions requires some additional info:

Are you married or single? If married, are your filing a joint return or seperate.

Will the year end bonus show up in this calendar year or 2006? Is the year end bonus a fixed amount or variable?

You said you never saved before. Does this mean you have no other retirement assets from this or a prior job?

What is the income tax rate for the state in which you live now?

When do you expect to "retire"?

What percent of your total income in this new job do you feel you can set aside in a retirement/investment program?

[Guest maf]

Whew! Thought I was giving too much info before....

Single.

No, no other retirement assets from this or any other job (no home, no equity, no savings).

Yr end bonus: I have the option of being paid on 12/30/05 or 1/6/06 and up to $14k of it going into 401k. It is supposed to be a variable amnt based on performance but they are very generous and I will most likely get full $15k.

I'm in NY state, tax rate roughly 28-30% for my bracket?

Expect to retire at 67, unless I love what I'm doing at the time and keep going.

I believe I can set aside approx 26% of total income (plus the $3k profit sharing) into retirement/investment program. Maybe more if I get really serious.

Hope that answers all questions.

[Guest maf]

Still waiting for an answer.....anyone?

[mbozek]

You cant make a deductible contribution to an IRA if your AGI exceeds 50k. Roth contributions are permitted if your AGI does not exceed 95k. Your taxable comp will be 86k (100k-14k 401k contribution). You need to check with your tax advisor to project your AGI for 05.

[John G]

Yes you can do the 401k and the Roth.... assuming that you can squeeze in under the income limitation for a single taxpayer. You will need to keep careful track of your income as interest, dividends and the bonus lump can cause a problem. You may need to look carefully about the timing issue as the end of year approaches. It is possible in future years you may no longer qualify for the Roth.... but this is where if you are serious and have the discipline to built up your assets, you probably want to get an hour or 2 of tax advisor time before the year ends. At a minimum, you want to keep careful track of your income and run it through tax prep software.

IF you set aside about 14-15k each year for the next 25+ years, you have the chance to build a retirement next egg that could exceed $1 million.

Gone for a week. Will look at posts later this month.

[Guest maf]

Thank you both, John G and mbozek. I really appreciate your time!

[John G]

MAF, about 98% of all questions get answered, usually with good material. Everyone here is a volunteer. Sometimes it take a few days before someone who has experience with your question gets time to post.

Got more questions - post again.