Hi everyone,

I've been reading GRS for a while, but am new to posting. But, I have a situation that I'm a bit stumped about the best approach, and thought you all might have some ideas.

Here's the situation: My husband recently accepted a new job. At his old job, he contributed to a 401K at 14% of his salary. He won't be eligible to participate in his new employer's 401K until January 1, 2013. What is the best way to continue contributing to retirement accounts in the gap between leaving his old employer and his eligibility to participate in his new employer's 401K...hopefully in a tax-beneficial manner.

I've been looking at IRAs, but my reading of the rules seems to suggest that because my husband participated in his old employer's 401K this year, we would be subject to the deduction phase out rules, so while we would get the benefit of continuing to contribute to a retirement plan for him, it would not have a tax benefit (I think we will be just above the threshold).

Alternatively, I could increase my contribution to my employer's 401K (I am not currently maxing out the contribution limit), and he could take a break from contributing to a retirement account until his new plan kicks in, which would keep the benefit of reducing our taxable income.

Am I missing something? Is there some other tax-beneficial means of him contributing to a retirement account?

According to the top google hit for "ira 401k part year" it seems that your husband would indeed fall under the income limitations for deducting an IRA contribution.

It's good news that you have room in your 401(k) contribution. That's definitely a reasonable option. If you ever got divorced (not that you would of course), the 401(k) would probably get split up between the two of you, so which of yours you contribute to probably doesn't matter.

Also, by lowering your AGI by contributing to your 401(k), you might bring your total income down enough that a traditional IRA contribution would become deductible.

Another option is a Roth IRA, for either or both of you. That's totally reasonable.

if your husband hasn't quit yet, can he make a large sum contribution until he quits? This assumes you are allowed to and have the cash to do that.

Also, if you plan to make a non-deductible IRA contribution and convert to Roth, do NOT roll over your husband's 401k before making the conversion. Otherwise, you will have to do it pro-rata. If either of you have TIRA accounts, a non-deductible TIRA contribution will also have to be taken pro-rata at conversion.

If the OP is close (just above the threshold) for deducting IRA contributions even with 401(K) access, they are probably nowhere near the limit for being able to contribute directly to a Roth IRA.