Does 401K limit IRA contribution

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
raaizin
Posts: 30
Joined: Sat Dec 20, 2014 7:55 pm

Does 401K limit IRA contribution

Post by raaizin »

I have some extra cash and I would like to open up an IRA for my daughter who just started her first job. Would that limit what she can contribute to her 401K? Also I like to invest it in the PRIMECAP fund as it has done very well for me over the years. Unfortunately this is closed to new investors. I thought I had read you can gift shares to someone. Is it possible to gift shares from my 401k to her IRA. If not I also have PRIMECAP CORE shares in a taxable account. Could these be gifted to her IRA?
pizzy
Posts: 260
Joined: Tue Jun 02, 2020 6:59 pm

Re: Does 401K limit IRA contribution

Post by pizzy »

The answer is no to all 3 questions.
User avatar
grabiner
Advisory Board
Posts: 30573
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Does 401K limit IRA contribution

Post by grabiner »

The 401(k) contribution and IRA contribution limits are separate.

However, if you have a 401(k), there is an income limit for deducting contributions to a traditional IRA. You can still contribute to a Roth IRA if you are under its income limit, or make non-deductible traditional IRA contributions regardless of income. If you have no retirement plan at work, there is a much higher limit for deducting IRA contributions if your spouse has a retirement plan, and no limit at all if you are single or neither spouse is covered by a retirement plan.
Wiki David Grabiner
HomeStretch
Posts: 6988
Joined: Thu Dec 27, 2018 3:06 pm

Re: Does 401K limit IRA contribution

Post by HomeStretch »

If your daughter just started her first job, she needs to have sufficient 2021 eligible compensation to make 401k and IRA contributions. You didn’t say whether contributions will be Traditional (pretax) or Roth. Eligible W-2 compensation is not reduced by Roth 401k contributions but it is reduced by Traditional 401k contributions. So be sure she has sufficient compensation for an IRA contribution.
Topic Author
raaizin
Posts: 30
Joined: Sat Dec 20, 2014 7:55 pm

Re: Does 401K limit IRA contribution

Post by raaizin »

pizzy wrote: Wed Oct 13, 2021 9:07 pm The answer is no to all 3 questions.

According to this I can gift from taxable account

https://personal.vanguard.com/us/litful ... bCat2=CGIV
pizzy
Posts: 260
Joined: Tue Jun 02, 2020 6:59 pm

Re: Does 401K limit IRA contribution

Post by pizzy »

raaizin wrote: Wed Oct 13, 2021 9:26 pm
pizzy wrote: Wed Oct 13, 2021 9:07 pm The answer is no to all 3 questions.

According to this I can gift from taxable account

https://personal.vanguard.com/us/litful ... bCat2=CGIV
You didn’t ask if you could gift shares. You asked if you could gift shares to her IRA. Huge difference.

From your link:

“Your gift must come from one of your nonretirement accounts and be transferred to the same holding in an existing nonretirement account at Vanguard or another financial institution.”
billfromct
Posts: 1338
Joined: Tue Dec 03, 2013 9:05 am

Re: Does 401K limit IRA contribution

Post by billfromct »

Maybe once the Primecap fund is established in her taxable account from your gift shares, she can open a Primecap fund in her IRA account.

My son had the Primecap fund in his taxable account that was established years ago when he was young before the Primecap account restrictions. A Primecap fund was opened in his Roth IRA account recently with no problems by transferring money from another fund in his Roth IRA.

A $25,000/year Primecap contribution limit applies to all Primecap fund contributions (taxable, IRA, etc.). This wouldn’t apply to your daughter but my son moved money from another Roth IRA fund to the Primecap fund in his Roth IRA so the $25,000/year contribution limit applied.

bill
Topic Author
raaizin
Posts: 30
Joined: Sat Dec 20, 2014 7:55 pm

Re: Does 401K limit IRA contribution

Post by raaizin »

pizzy wrote: Wed Oct 13, 2021 9:41 pm
raaizin wrote: Wed Oct 13, 2021 9:26 pm
pizzy wrote: Wed Oct 13, 2021 9:07 pm The answer is no to all 3 questions.

According to this I can gift from taxable account

https://personal.vanguard.com/us/litful ... bCat2=CGIV
You didn’t ask if you could gift shares. You asked if you could gift shares to her IRA. Huge difference.

From your link:

“Your gift must come from one of your nonretirement accounts and be transferred to the same holding in an existing nonretirement account at Vanguard or another financial institution.”
Got it thanks!
Post Reply