After being laid off and going back to school, I have had little time to prepare for retirement. We have been blessed with an income of $175K filing jointly. How much can we contribute to retirement and how much will it bring down our AGI?
“Congratulations on getting ‘back on your feet’ AND for thinking about the future NOW!” said FPA member Laura High, CFP®. “As is customary with many financial matters, the answer to your question is, 'it depends!'
“It depends on several factors including the retirement plans made available to you by your employers and/or whether or not you are self-employed. The most common type of company sponsored plan is the 401(k). If you have access to a 401(k) through work, you can contribute $17,000 (plus an additional $5,500 if you are over age 50.) Typically, the amount you are able to defer into your 401(k) reduces your taxable income dollar for dollar within these limits for that year. Your company may match on top of your contribution. Some companies allow after tax contributions in addition to these limitations.
“In addition, you may also contribute to an IRA. 2012 allows a maximum contribution of $5,000 with a $1,000 ‘catch-up’ if over 50 years of age. Whether this contribution is deductible or whether or not you can contribute to a Roth IRA also depends on various factors, as well.”