If you have a Self-Directed 401(k) or other retirement plan at work, you may fully or partially deduct your contribution from your taxable income if your adjusted gross income qualifies.
To see if you qualify for a deductible IRA, which lets you deduct all or part of your contributions from your taxable income, use the following guidelines:
If you have no retirement plan at work and you're under 70-1/2 years of age, you can invest in a deductible IRA and deduct the entire amount from your taxes.
If you have a 401(k) or other retirement plan at work, you may fully or partially deduct your contribution only if your adjusted gross income (AGI) qualifies. Your AGI normally cannot exceed about $62,000 if you're single or head of household, (always confirm amounts for each new calendar year) or $103,000 if you're married and filing jointly.
If you're not covered by a retirement plan, but your spouse is, you may qualify for a full or partial deduction if you file jointly and your AGI is below $166,000. (The same rule applies if you're a non-working spouse of someone covered by a retirement plan at work.)
If you're not eligible to contribute to a deductible IRA, you may be eligible to contribute to a Roth IRA if your AGI is below $114,000 if you're single or $166,000 if you're married filing jointly.
If you make too much to qualify for a Roth IRA and are not eligible for a deductible IRA, a nondeductible IRA is a valid option. Your contribution won't be deductible, but at least your savings will grow tax-deferred.
More Self-Directed IRA Information...
What is a Self-Directed IRA?
A self-directed IRA is technically no different than any other IRA (or 401k). A self directed IRA is unique because of the available investment options.
Many IRA custodians only allows approved stocks, bonds, mutual funds and CDs. A truly self directed IRA custodian, like Equity Trust, Fiserv, Pensco etc. often allows additional types of investments such as real property, notes, private placements, tax lien certificates. In fact, a truly independent custodian will actually not make any investment recommendations at all. They view the purpose of their principle role is to make sure you are following proper procedure regarding tax guidelines.
Why haven’t I heard of a Self-Directed IRA before?
While the concept of investing in real estate and other assets in retirement plans has been accepted by the IRS for more than 30 years, the concept has not received much attention because most custodians who offer IRAs (banks and brokerage firms) focus on mutual funds and CDs because they have vested financial interests in you selecting those investments from them.
Financial incentives may cause some custodians to focus on stocks and CDs. Since Stocks, mutual funds and CD’s have hurt many investors recently, we are seeing a dramatic increase in the amount of investments coming from self-directed IRA plan into alternative investments.
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