Can You Contribute to IRAs and 401Ks?
Employees working in the U.S. may defer portions of their wages into interest-bearing accounts available upon retirement. The IRS applies restrictions and benefits to all retirement accounts. The two most popular accounts are 401(k)s and Individual Retirement Accounts. A prospective retiree may hold both a 401K and an IRA.
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401(k)
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The 401(k) allows pretax wage deductions into an account established by an employer. These fund an interest-bearing investment account, intended for release when the employee retires. The Internal Revenue Code in 2009 states that employees may set aside a maximum of $16,500 per year.
IRA
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As of 2009, a person under age 50 may contribute $4,000 annually to a traditional IRA. A person may contribute the maximum amount to both a 401(k) and to an IRA because the IRS considers these contributions separately.
An individual may hold more than one IRA, but that person may not deposit more than the annual limit distributed across the accounts.
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Catch-Up
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The government allows individuals older than 50 to increase retirement contributions to catch up on missed savings opportunities. Those over 50 may contribute up to $20,000 annually to a 401K, and up to $6,000 to an IRA.
Spousal Contributions
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An employee may contribute to a retirement account established on behalf of a spouse. This contribution allows for savings over the IRS limits established for individuals. For a couple under 50, a person may contribute a maximum of $5,000 on behalf of a spouse. For couples over 50, a person may contribute up to $6,000.
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