If you work for a public school or a qualifying tax-exempt organization, such as a hospital or health care agency, you may be able contribute to a 403(b) retirement savings plan. You might also have a traditional IRA or want to open one. A nice feature of these savings plans is that you can have both and contribute up to the maximum annual limit for each one.
You and your employer may make tax-deferred contributions to a 403(b) retirement plan. “Tax-deferred” means you don’t pay taxes now on the money. Instead, contributions and investment earnings are taxable when they are withdrawn from the account. Employers can kick in up to $33,500 each year as of 2013. You can decide how much you want to stash in a 403(b) up to a limit of $17,500. Thus, up to $51,000 can be added to the account annually, although the total may not exceed 100 percent of your yearly salary.
After you’ve worked for an organization for 15 years, you can add extra money to your 403(b). The additional amount varies, but as of 2013 could be up to $3,000 per year. That pushes the total you can put in a 403(b) in one year to $20,500. In addition, once you reach 50, you can tack on another $5,500 a year on top of your other contributions as of 2013. Catch-up contributions are also tax-deferred.
Traditonal IRA Contributions
A traditional IRA is a tax-deferred savings arrangement like a 403(b) or other employer-sponsored plan, except you don’t need an employer to provide it. Contribution limits are also different. As of 2013, you can add up to $5,500 to a traditional IRA, plus another $1,000 starting when you are 50. The money you tuck into the IRA is usually tax-deductible. Plus, if your 403(b) plan allows rollovers or you leave your job, you can move money from a 403(b) to a traditional IRA without losing the tax-deferred status of the funds.
IRA Deduction Limits
There is no combined limit on what you can add to 403 (b) and IRA plans, meaning the amount you put in one won't affect how much you can tuck away in the other. However, the amount of your traditional IRA contributions that you can write off on your taxes might be reduced or cut completely when you have a retirement plan at work like a 403(b). As of 2013, if you’re single, the deduction starts to phase out when your adjusted gross income reaches $59,000 and disappears when your AGI hits $69,000. If you’re married and file a joint return, the phase-out is $95,000 to $115,000. When your spouse is covered at work by a 403(b) or other retirement plan, but you are not, your traditional IRA deduction goes away as your AGI rises from $178,000 to $188,000. You can still add to a traditional IRA – you just don’t get to write off the contributions.
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