IRA contribution

[lefty]

IRA beginner question - My wife had an IRA that was opened when she worked for an old employer. It is now rolled over from the original account to another company, Vanguard. She has not contributed to it for several years and has moved on to a new employer. She is going to contribute to an IRA this year. Can she contribute to this "old" IRA or does she have to open a new one?

Now as I think about it, if it was employer oriented it must have been a 401K, right? It is showing on the Vanguard account as a "Roll-Over IRA" though. More confusion in my investing world! I guess the employer could have contributed to an IRA for her. It was definitely his money though! If it is listed on Vanguard as an IRA I guess that is all that matters. Can she contirbute to that particular account as I asked before? Thanks in advance.

[sweeps]

I assume your wife contributed pre-tax dollars to her 401(k). In that case you would not want to contribute to the rollover IRA with post-tax dollars. She should open another account.

ADD: Your wife can add to the IRA by contributing to it as a traditional IRA. This could help to avoid minimum balance problems with opening another account. She would not be able to roll the account over again to another employer's plan, but this usually isn't a big concern.

[lefty]

Yes, she would contribute to it as a traditional IRA. Minimum balance is not a problem since she will contribute the max for 2005, $4500 (over 50 years old). I guess I am assuming that since the account reads "Rollover IRA" it was a true traditional IRA rather than 401k. Is it possible for a 401K to be rolled over to an IRA?

[RJB1180]

yes, a 401K must be rooled over to a IRA when you leave a place of employment unless you have over 5k in the account then you can choose to leave it in the 401K, ie if they have really outstanding funds performance and low fees. If/when it is rolled over it must be rolled over as a traditional IRA as the money is pretax. ALWAYS have direct rolover. Scottrade is a good place to rollover to as they have a $500 min. and no IRA fees.

[sweeps]

RJB is correct. I have a Rollover IRA at Vanguard. It was a 401(k) in a previous life. When I leave my current job, I'll roll my current 401(k) and pension into that same account.

[debtfreeme]

your wife had a 401k that was rolled onve into an IRA with Vanguard.

Ask and find out what type of IRA it is whether ROTH or Traditional as they have different qualities.

If she can contribute to her current employer go with that expecially if they have company matching. If they don't and she is less than 50 maximum are 4000 per year.

If she is self employed now she can open a different retirement account and can place up to 40k away each year.

Find out what type it is. With a traditional you are taxed when you start taking the money out because it is tax deferred. With a ROTH when you withdraw (after 59.5 year of age) none of it is taxed, money saved or the earnings it made. In other words it is tax exempt rather than tax deferred. with the ROTH As long as you follow the rules, you never pay taxes on your gains.

You might want to convert your traditional to a ROTH, consult a tax/finance advisor to work the numbers on that.

Good luck!

[lefty]

It is a traditional IRA not a Roth. I don't believe we can open or convert anything to Roth because of the income limit. Our combined income is around $220,000 or so. So, let me see if I have it right- the original 401K was rolled over to a traditional IRA which was and still is all pretax money. She is going to contribute to an IRA this year, all personal funds, no employer match or anything. Just a check from us to them. She can contribute this new $4500 to the Vanguard IRA even though it was associated at one point with an old employer. I guess that was my original question, does she need to open another IRA or can she contribute to that one?

[sweeps]

Yes, she can contribute to the same account.

You may make additional cash contributions to your rollover IRA or roll over funds from an existing IRA, 401(k) or 403(b) plan (and beginning in 2002, 457(b) governmental plans). However, once you commingle other funds with your rollover IRA, you may no longer be able to roll the account into another employer-sponsored plan.

Source

Additional information here

[debtfreeme]

The right to stash retirement cash in a Roth disappears as AGI rises between $150,000 and $160,000 on a joint return and between $95,000 and $110,000 on the return of a single person, whether filing as an individual, a head of household or a surviving spouse. The same limit -- $150,000 to $160,000 -- applies to spousal contributions. And, yes, catch-up contribution amounts are phased out, too. When AGI passes the top of the phaseout zone, you may not contribute to a Roth at all. Note that the Roth phaseout zones apply regardless of whether you are covered by a retirement plan at work. (source Kiplingers personal finance)

So i don't believe she is eligible to drop any money into an ira right now.

[sweeps]

True, but his wife will be making traditional IRA contributions.

[lefty]

Yes, it would be a contribution to a traditional IRA. The income limits for a Roth are based on adjusted gross income not W-2 earnings, correct?

[debtfreeme]

Correct.