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Retirement Account Winners and Losers

Robert Berger

How much you are eligible to save in tax-advantaged retirement accounts each year depends on a host of factors including where you work, how much you make, your marital status, your filing status, how much your spouse makes, where he or she works and if you are self-employed. This complicated tax situation creates a variety of unexpected winners and losers who can contribute unusually large or small amounts to tax-preferred retirement accounts. Here's who comes out ahead and behind in our retirement savings system:

Losers -- People without 401(k)s at work. Those with access to a 401(k) can save $17,500 a year, not including the catch-up contribution for those 50 and older. For those without access to a 401(k), the tax code provides for a deductible IRA. That's the good news. The bad news is that the IRA only allows contributions up to $5,500 a year. Those without access to a workplace retirement option are penalized $12,000 a year in potential retirement savings.

Winners -- People who are eligible to contribute to 401(k)s and IRAs in the same year. Many people with a workplace retirement option are additionally permitted to fund an IRA with pre-tax dollars if their income falls within annual limits. Those who can contribute pre-tax dollars to both a 401(k) and an IRA increase their advantage to $17,500 more than those without a 401(k) can defer tax on.

Losers -- Stay-at-home parents. A two-income family with workplace retirement options at both jobs can defer tax on $35,000 a year combined. One-income families are limited to the $17,500 contribution allowed to a single 401(k).

Winners -- The self-employed. Imagine being able to defer tax on up to $52,000 a year for retirement. For employees this may seem impossible. However, for the self-employed it's a reality. Both a SEP IRA and a solo 401(k) permit such contributions, but workplace retirement accounts for employees do not.

Winners -- Employees with a 401(k) match. Many employers offer matching contributions that enable employees to save significantly more than the $17,500 limit. For employees without matching contributions or any 401(k) plan at all, they are out of luck.

Losers -- Married couples. In the case of retirement savings, marriage could be keeping you from making a deductible contribution to an IRA. For a single filer with no workplace retirement plan, IRA contributions are deductible regardless of income. Get married, however, and your spouse's income could prevent you from deducting your IRA contributions, even if you don't have a retirement account at work.

Rob Berger is an attorney and founder of the popular personal finance and investing blog, doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing, and the Dough Roller Money Podcast.

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