IRA contribution limit?

notagame

My employer just had a talk with me about setting up IRA for everybody in the company. They talked to their accountant or some such and they were told that we can put up to something like more than $100000, to which I was skeptical because I thought the limit on an IRA is $5000.

I admit I'm not 100 percent sure on this as it's my first time dealing with retirement and IRA. From the IRS website it saids

If you are under 50 years of age at the end of 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.

So the limit is either $5000 or whatever you make if you make less than $5000?

Is there any other possible way to put more than $5000 into your IRA through the magic of accounting or is my employer about to be duped by some fucking quack of an accountant? This is very serious business to me because it's going to be my money on the line too if it turns out they get duped.

If they are indeed getting duped, what can I do to show them? Print out the IRS website with the IRA limit?

Aioua

Are you sure they didn't mean 401k? In general, your employer has nothing to do with your IRA(s). Contribution limits for 401ks are just under $50k right now.

notagame

Aioua wrote: »

Are you sure they didn't mean 401k? In general, your employer has nothing to do with your IRA(s). Contribution limits for 401ks are just under $50k right now.

Yup they say it's IRA, which is what gave me the warning flag.

Aioua

Well, my money is on this guy not understanding what his accountant said, at all.

Tube

You should definitely not contribute money to the Irish Republican Army. They are horrible.

Inquisitor77

He definitely misunderstood his accountant. However, I'm 95% certain that he was discussing a Roth 401(k), and not a traditional IRA, Roth IRA, or 401(k) plan. The reason being that the $100k figure actually shows up (roughly) in that you would have to be paid more than $110k by your employer to no longer be eligible for the program. Roth 401(k) plans also have much higher limits than the traditional Roth IRA as well, which is probably what got your employer all riled up.

IRAs and Roth IRAs generally have nothing to do with your employer - you can get one, or not, purely at your own discretion. A 401(k) is something offered by an employer as a supplemental benefit to your salary/wage - they set up the account, and if you put money in then they match those funds at varying levels. The money you put into a Traditional 401(k) account is taxed as normal income for you for that year. However, the money your employer puts in the account can be tax-deferred, making it a pretty good deal for the employee in the long term, because the "matched" funds from the employer is allowed to compound without losing anything to taxes right up to the point you decide to take the money out.

Obviously there are pros and cons to the entire arrangement. As food for thought, consider if the employer simply paid the employee in straight income what they would normally "match" in a 401(k) - plenty of people would rather take that option for a variety of perfectly valid reasons (not the least of which is that way too many people don't even take the matching to begin with, so "a bird in the hand is worth two in the bush").

notagame

Thanks for the info, definitely going to have more talks with the boss to clarify things.

Kakodaimonos

Inquisitor77 wrote: »

He definitely misunderstood his accountant. However, I'm 95% certain that he was discussing a Roth 401(k), and not a traditional IRA, Roth IRA, or 401(k) plan. The reason being that the $100k figure actually shows up (roughly) in that you would have to be paid more than $110k by your employer to no longer be eligible for the program. Roth 401(k) plans also have much higher limits than the traditional Roth IRA as well, which is probably what got your employer all riled up.

IRAs and Roth IRAs generally have nothing to do with your employer - you can get one, or not, purely at your own discretion. A 401(k) is something offered by an employer as a supplemental benefit to your salary/wage - they set up the account, and if you put money in then they match those funds at varying levels. The money you put into a Traditional 401(k) account is taxed as normal income for you for that year. However, the money your employer puts in the account can be tax-deferred, making it a pretty good deal for the employee in the long term, because the "matched" funds from the employer is allowed to compound without losing anything to taxes right up to the point you decide to take the money out.

Obviously there are pros and cons to the entire arrangement. As food for thought, consider if the employer simply paid the employee in straight income what they would normally "match" in a 401(k) - plenty of people would rather take that option for a variety of perfectly valid reasons (not the least of which is that way too many people don't even take the matching to begin with, so "a bird in the hand is worth two in the bush").

You've got that reversed. Any contributions into a 401(k) are tax-deferred. Your contributions will reduce your Adjusted Gross Income (AGI). You don't pay taxes on those contributions until you withdraw money from the 401(k).

Contributions into a Roth 401(k) are taxed but disbursements from the Roth 401(k) are not taxed. Contributions do NOT reduce your AGI. However, you don't pay taxes on any money you withdraw from a Roth 401(k).

IRA and Roth IRAs are similar, except there are specific income limits on whether or not you can actually make contributions into either an IRA or Roth IRA. (You can set up a non-deductible IRA if you want to, but it gets a little more tricky and I would talk to an accountant if you really want to do that.)

2010 IRA contribution limits

Here's the IRA contribution limit calculators for AGI:
Covered by a retirement plan
Not covered by a retirement plan

Six

They also may be talking about a SIMPLE IRA, which is an option some smaller companies offer instead of a 401(k).

The contribution limit for a SIMPLE IRA is $11,500 this year if you're under 50, I believe.

This is still separate to a traditional or Roth IRA which has the $5k limit.

Jimmy King

Employers can and do offer IRAs rather than 401Ks. My employer contributes into a Simple IRA plan for us rather than a 401K. It's similar to a standard IRA, but specifically for small companies.

notagame

Six wrote: »

They also may be talking about a SIMPLE IRA, which is an option some smaller companies offer instead of a 401(k).

The contribution limit for a SIMPLE IRA is $11,500 this year if you're under 50, I believe.

This is still separate to a traditional or Roth IRA which has the $5k limit.

Is SIMPLE IRA the same as SEP IRA?

SEP IRA is what I'm told the company is going with. Where can I find out more about this besides the IRA website? In particular I need to know what happens if I am to quit and go to another job.

Kakodaimonos

SPE IRA Faqs