With an adjusted gross income (AGI) of more than $100,000, only your eligibility to deduct contributions to a Traditional IRA will be affected.

Even if you are unable to deduct your Traditional IRA contribution, you may still contribute up to the limit for the year ($4,000 for 2005, plus an additional $500 if you reach age 50 by Dec 31, 2005) to your Traditional IRA and treat the contribution as a nondeductible contribution. If you choose to make a nondeductible contribution to your Traditional IRA, you should file IRS Form 8606 (available at the IRS website) to report the contribution as nondeductible to the IRS and to keep track of the nondeductible balance (basis) in your Traditional IRA.

You would also need to file Form 8606 for each subsequent year you distribute assets from your Traditional IRA, to determine the taxable portion of the distribution.

If you are not eligible to deduct the contribution to a Traditional IRA, and you are eligible to contribute to a Roth IRA, then the Roth may be the better choice. This is because the earnings on Roth IRA assets accrue tax-deferred and are tax free if distributions are qualified, whereas the earnings in a Traditional IRA accrue tax-deferred but are taxed when distributed. You are eligible to contribute less than 100% of your compensation or up to the limit for the year ($4,000 for 2005, plus an additional $500 if you reach age 50 by Dec 31, 2005) to a Roth IRA if your income is as follows:

  1. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  2. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  3. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  4. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  5. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  6. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
Related Articles
  1. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  2. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  3. Retirement

    Read This Before You Retire in the Philippines

    The Philippines has a warm climate, a low cost of living and plenty of people who speak English. What to do next if you think you want to retire there.
  4. Retirement

    4 Books Every Retiree Should Read

    Learn more about the current financial situations retirees are facing and discover four books that every prospective and current retiree must read.
  5. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  6. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  7. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  8. Taxes

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
  9. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  10. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  3. Leg

    A leg is one component of a derivatives trading strategy, in ...
  4. Grant

    The issuance of an award, such as a stock option, to key employees ...
  5. Put-Call Parity

    A principle that defines the relationship between the price of ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center