This week's response comes from:

Lou Stanasolovich

Louis P. Stanasolovich, CFP is Founder, CEO, and President of Legend Financial Advisors, Inc. (Legend), a fee-only financial advisory firm with its headquarters located in Pittsburgh, Pennsylvania.  Legend provides Wealth Advisory Services, including Comprehensive Financial Planning and Investment Management, to affluent and wealthy individuals as well as business entities.  Mr. Stanasolovich has been selected by Worth Magazine as one of “The 250 Best Financial Advisors in America” five successive times, by Medical Economics as one of “The 150 Best Financial Advisors in America for Doctors” three consecutive times and most recently by Mutual Funds magazine as one of “The 100 Great Financial Planners in America” in its October, 2001 issue.  His investment process has been profiled in Barron’s, Business Week, Investment Advisor, Investment News, Morningstar Investor, USA Today, Worth, and on the Internet publication TheStreet.com.  He can be reached via e-mail at legend@legend-financial.com, via the website - www.legend-financial.com, or at (888) 236-5960.

Does having a 401(k) affect my ability to contribute to a Roth IRA?

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Does having a 401(k) affect my ability to contribute to a Roth IRA?

from JD

Q: Does the fact that I signed up for a 401(k) affect my yearly contribution of $2,000 in my Roth account? Am I allowed to have both?

A: (Lou) The fact that you signed up to contribute to your 401(k) has nothing to do with your eligibility to contribute to a Roth IRA, but your level of income does. If you are single, you can contribute up to the maximum permitted amount to a Roth IRA for 2002 if your adjusted gross income is below $95,000. The maximum amount phases out between $95,000 and $110,000. The maximum contribution for an individual is $3,000 if you will be age 49 or less on the last day of your 2002 tax year. If you are 50 or older, the maximum contribution is $3,500 for 2002. If you are married filing jointly, you can make the full contribution if your adjusted gross income is $150,000 or less. The maximum contribution phases out between $150,000 and $160,000.

It is also important to remember that if you cannot make a full contribution to a Roth IRA, the difference between the maximum eligible amount and the amount actually contributed to a Roth IRA can be contributed to a regular IRA. In other words, always make the maximum eligible IRA contribution regardless of the type of IRA it is. Usually, through a Roth IRA is best.

Don't forget to maximize your 401(k) as well. Individual's who are age 49 or less can contribute up to $11,000 in 2002. Those 50 and over can contribute $12,000.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.