Originally Posted By: Astro14
Originally Posted By: Vuflanovsky
Yeah, being over 50 I would tend to agree with you, but a 401K contribution is earned income and an IRA contribution amount just has to be covered by what you've made that year ( w/out penalty at least ) up to your limit. If you've got 50K socked away that was not earned and suddenly is dropped into a IRA, then the government and the tax man loses visibility and, in terms of a tax-deferred retirement plan, can be thought of as a tax dodge or an unfair transfer of wealth among other things. Apparently, $6500/yr. is OK though.
I have no idea what you're talking about.
Tax deductible contributions to IRAs are reported.
Non-tax deductible contributions to IRAs are reported.
Roth IRA contributions are reported.
401(k) is a salary deferral - and reported on your W-2.
Moving money between those types of accounts may, or may not, cause tax consequences, but none of it is hidden and none of it avoids taxes.
You move $$ from a 401(k) or traditional IRA to a Roth, you're gonna pay taxes right then and there on both the basis and the gain.
The question concerned the $6500 limit on 50 and over individual contributions to IRAs and not what's reported to the IRS. I was talking more about the origin of the money if you're hypothetically allowed to drop 50K ( for example ) into an IRA with only deferred tax consequences. In effect, the money IS hidden if you've earned 50K that year, the contribution is not earned and you were allowed to contribute to an IRA at that level...hence the comment about a tax dodge and unfair advantage for wealthier persons. Personally, I've never made an IRA contribution where I had to define the origin of the funds whereas a 401(k) contribution is obviously from earned income.
There are qualifications for Spousal IRAs, SIMPLE and SEP IRAs that are a bit different, but my point was that the visibility/origins of the money, or lack thereof, contribute to the IRS dictating the relatively low IRA contribution limit.
