Can I Supplement My 401(k) with an IRA Contribution?

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Question: I participate in my employer’s 401(k) plan and this year I will be contributing $18,000. I am over 50 and I know I am allowed to contribute an additional “catch-up” amount of $6,000, and normally I would. However, this year I can’t because for a while I was on disability and was not drawing a paycheck.

I have a traditional IRA account, and I was wondering if I can contribute $6,000 as a catch-up to my IRA account this year and take the $6,000 as an IRA deduction? My husband and I file a joint return and our adjusted gross income will be about $76,000. If I could make a contribution to my IRA in the amount of $6,000 then my adjusted gross income would be about $70,000 and I would owe less income tax. I would like to contribute to my IRA this year in the amount of $6,000 only if I could take it as a deduction. I would also consider contributing more than $6,000 to my IRA as long as I could take it as an IRA deduction. I am not interested in contributing to a Roth IRA because it is not tax deductible. Any light you can shed on this subject would be helpful.

Answer: First of all, congratulations on taking advantage of your opportunity to save for your retirement by maximizing your payroll contribution to a 401(k) retirement plan. As you probably already know, the burden of supporting yourself during your retirement years rests on your shoulders and no one else’s.

Most companies offer 401(k) plans and most nonprofit organizations offer 403(b) plans, which are similar. Many employers will match your contributions up to a certain amount. Every employee should participate. If you don’t save for retirement ahead of time, you will be relying solely on Social Security, but Social Security alone just isn’t enough.

Originally, Social Security was created during the Great Depression as an “old-age” benefit by the U.S. government to aid retired folks over age 65. It was meant to partially replace the workers’ earnings after retirement, and never intended to provide enough income to allow a retiree to maintain the lifestyle to which they were accustomed and would like to maintain.

To answer your question, you can contribute to a traditional IRA and deduct the entire amount of your contribution as long as you file a joint tax return with your husband and your adjusted gross income (AGI) is less than $98,000. IRA deductions for married taxpayers who participate in their employer’s retirement plan and file as “married filing jointly” are phased out between AGIs of $98,000 and $118,000 (the phaseout for single filers in 2015 is between AGIs of $61,000 and $71,000).

The IRA contribution limit for 2015 is $5,500 plus a $1,000 catch-up contribution for being 50 or over, so you can contribute and deduct $6,500. You could have done this even if you were able to contribute the $6,000 catch-up to your 401(k). That’s something to think about for next year.

Kenneth B. Petersen is an investment adviser and principal of Monterey Private Wealth Inc. in Monterey. Send questions concerning investing, taxes, retirement or estate planning to 2340 Garden Road, Suite 202, Monterey 93940 or ken@montereypw.com.