I make maximum contribution to my employers 401(k) plan. My wife's employer does not offer any retirment plans. Our combined AGI is less than $160,000.

Questions:

1. How much can I contribute for ROTH & Traditional IRA for 2001?

2. How much can my wife contribute for ROTH & Traditional IRA for 2001?

Thanks for your help!!!

If your MAGI is below $150,000 than you can contribute $2000 to either a non-deductible or Roth or in any combination as long as it does not exceed $2000.
Your wife can contribute $2000 to a deductible or Roth, or in any combination as long as it does not exceed $2000.
If you are between $150k-$160k the amounts for deductible or Roths would be lower.

You Q and answer were aimed at 2001 limits. As a result of the tax bill signed by Bush in June 2001, the contribution limits will jump up as follows: $3000 in year 2002, $4000 in year 2004 and $5000 in year 2008.

Also new: a "catch up" provision for folks 50+ years old that adds an extra $500 in 2002.

Hi Jim:

Thanks for responding to my question. Since I don't qualify for a traditional IRA, I plan to contribute to a ROTH. My wife has been contributing to a Traditional IRA account $2000 each for years 1999 & 2000.

Question:

For year 2002 - Can my wife recharacterize $3000 from her existing traditional IRA to a ROTH account? If yes, can she still contribute another $3000 for ROTH in the same year (2002).

I would appreciate your help!!!

Your wife can CONVERT $3000 of Traditional to Roth (provided your joint AGI is not in excess of $100,000) this year. As you are aware the conversion means she will have to pay taxes on that amount, provided it was a deductible IRA.
You said recharacterize $3000 but from your post it appears she made no contribution in 2001 so there is nothing to recharacterize but if there was for 2001 it would be limited to $2000.
Since she did not make a contribution for 2001 she is still eligible to contribute $2000 as a Roth contribution for 2001 (up until 4/15/2002) as well as a $3000 Roth for 2002 (until 4/15/2003).

Hi Jim:

Thanks for your quick reply. Since my wife hasn't made any IRA contributions for 2001 yet, the only option she has at this point (since it is past 12/31/2001 she can no longer make any conversions from her existing Traditional IRA account for 2001), she can only contribute a deductible $2000 for a Traditional IRA( or a non-deductible $2000 to a ROTH IRA).

After she makes a $2000 contribution to say Traditional IRA account, she will then have a $6000 total for the years 1999 thu' 2001.

My question is:

If our joint AGI is less than 100,000, can she convert $3000 from her Traditional IRA account to a ROTH IRA account (after paying taxes) for the year 2002? If so, can she still make another contribution of $3000 to a Traditional IRA or a ROTH for the same year 2002. I guess she won't be able to make a new contribution AND a CONVERTION in the same year.

Thanks for your clarification....

I am not sure what it is you are trying to do.
First you are right that it is too late to do a conversion for 2001.
She is eligible to contribute $2000 to a Roth or Trad IRA this year for 2001. It makes no sense to me to put it in a TIRA and then convert to a Roth, so for the 2001 contribution put $2000 in a Roth.
She will have $4000 in a TIRA any part of which she can convert to a Roth this year, as well as contribute $3000 for a Roth for 2002.

To summarize, if she has $5000 available to her she can put it all in a Roth on Monday, $2000 for 2001 and $3000 for 2002.
She can also convert from her TIRA to a Roth $1k or $2k or $3k or the entire $4k.
She would only owe taxes on the conversion amount.

Thanks Jim. You answered my question.

"She would only owe taxes on the conversion amount"

The above is only true if all prior IRA contributions for your wife were deductible. Otherwise you pay tax on a fraction of the conversion. You can not cherry pick what you convert, the math is based upon a universal fraction of nondeductable contribution compared to total IRA assets (even if the assets are in different accounts, locations or custodians). See IRS Publ 590 for examples.