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10 Questions Before Buying a Stock

Alex Foster — Thu, 20 Sep 2018 18:23:44 +0000

Why are you buying this stock? You need to be able to define why you like a company's stock before buying it. Buying because you heard a great stock tip is a recipe for disaster. The investors who can time their entry into the next "hot stock" are rare to find after the tip has trickled through Wall Street and down to the retail investor who hasn't done research on the company and its stock.
Why is the price right now the best entry point? Buying a stock simply because a company seems like they have a great product or a great growth plan isn't enough. Investors need to consider how the company is valued based on historical earnings and anticipated growth. A great company does not equal a great stock because all known information should already be priced into the stock. Investors make decisions on what the expect to change outside of the wide-spread expectations.
Hold long do you plan to hold the stock? "Buy and hold" is different than "buy and forget". When buying a stock, investors should have a plan that includes a time horizon and valuation change. While paying taxes on capital gains is fun for no one, losing money on a stock that has already passed its reasonable valuation is even worse when the price reversal hits. Buying a stock you plan to hold for a long period can be fantastic, but don't forget about the stock when the reasons you bought it have changed. Those changes could be a macro-economic change or a company specific change. Ignoring your portfolio is closer to gambling than investing.
What is your planned exit price? Once you've determined the best entry point for the stock you decided to buy, it's important to have a price goal to exit. Those planned exit prices should be lower and higher prices. If a stock price drops after buying it, it helps to remove the emotions from trading if you have predetermined limits for your losses. The opposite emotions (aka greed) can be kept in check with a price you'd be willing to sell if the stock has good growth.
Do you understand how volatile the stock has been historically? Many stocks bounce around on a daily, weekly, or monthly basis and a quick loss could be due to a natural ebb and flow for the stock and not cause an alarm. If a stock moves suddenly in either direction it could be a signal something has changed or will soon if it's not within the stock's normal trading pattern.
How does it compare to its 52-week high and low? Buying close to the 52-week low can be tempting with the belief it's selling for a discount now, but that price drop could be the sign of something legitimate that is pulling the price lower. If you can't find a reason other than sentiment for the price change, it might be a good buying opportunity. The reverse is true for stocks trading at or near their 52-week highs. The stock could be moving on great news, a fundamental change that makes the stock worth more or it could be due for a drop if the price increase has simply been a price/earnings multiple expansion.
Would buying with a put option be a better choice than a limit order? A limit order allows an investor to buy on a dip, if that dip happens to fall as low as the price target. It's a great buy when an investor can time the dip near a low, but if the stock doesn't dip, the investor is left empty handed. Another route to take is to use a put option. Selling a put option gives the investor a premium (cash) as soon as the order is traded and allows an investor to make money (the premium) while waiting to see if the stock price declines. If the stock moves higher, the investor keeps the premium, but doesn't own the stock. If the stock moves lower, the investor buys the stock at a lower price than she otherwise would have if she had bought the stock initially.
Is this stock included in any funds you already own? When buying individual stocks or new funds (mutual funds or ETFs), investors need to know if they already own the stock in funds they already own. Some investors get more exposure than they might understand by not knowing what they already own in other funds.
How will you feel if the stock price drops 10% after you buy it? This goes back to number four above. If you expect volatility and get it, you can plan for the price drop. If you thought you were buying a certain winner, will you be tempted to sell on temporary weakness or would you consider buying more at the lower price. The answer for what is right is different for each stock and having a plan can save investors a lot of sleepless nights.
Is there another stock that could perform better and meet your risk profile better? Any stock can go up, but is this specific stock the best one to buy for your portfolio. Could another stock be better to help you diversify? Could another stock in the same industry have a better risk/reward profile for your needs? Before buying a stock, ask these questions and if this stock helps you diversify, verify its competitors do not fit your needs better.

Freeze Credit Reports

Alex Foster — Tue, 24 Oct 2017 14:22:53 +0000

Freezing your credit reports with the three major credit reporting companies (TransUnion, Equifax and Experianindividually) can be one of the best ways to prevent someone from opening credit in your name. Without a freeze on your credit reports, a thief who has obtained your personal information (i.e. social security number, driver's' license number) can open a credit card or bank account or obtain a mortgage or another loan in your name.

Here are links to each of the company's pages to request a freeze:

https://www.experian.com/freeze/center.html —1‑888‑397‑3742
https://www.freeze.equifax.com — 1‑800‑525‑6285
https://www.transunion.com/credit-freeze/place-credit-freeze — 1‑800‑680‑7289

In most states, placing a security freeze costs $3 per agency. If you apply for a credit card, mortgage, or auto loan you will have to unfreeze your credit report for another $3. Some rental properties, new cell phone service contracts, and store payment plans may require access to your credit reports also. Since data breaches are becoming a regular occurrence and Equifax has given away information on most of us, I consider freezing credit reports a requirement for all of us for the rest of our lives. Our personal data (social security numbers, drivers' license numbers, birthdates, and more) are available to criminals worldwide already. A $9 total fee and the few minutes and minor hassle to request a temporary lift in the freeze is a much better option than dealing with a stolen identity. A credit freeze does not prevent a thief from charging items and services to your existing credit cards, so it's important to continue monitoring credit card and bank accounts for fraudulent activity. If you are a victim of a credit card theft (for example, card numbers used at Target or Home Depot were stolen in recent years and card numbers used online at hacked sites are stolen every day), you'll need to contact your credit card issuer and request a new card and number be issued.

Each agency allows temporary lifts for companies to access your report. For example, you can have the freeze removed for two days or two weeks and then have it automatically freeze again without having to log on to the agency's website to begin the process again. If creating a temporary lift of the freeze, ask the requesting company which agency they use and how long they need it to be unfrozen and have the freeze restart as soon as possible outside of their required reporting window. Most situations will only require one to three days to check your credit. To remove a freeze, temporarily or permanently, you'll need the PIN you create (or are given) when you request the freeze. These PINs should be kept in a secure location, not on your computer that could be hacked.

The process only takes a few minutes per agency. After going to the above links, you can click on the links to request a freeze and then answer questions to verify your identity. Some of the questions can be challenging if they are obscure or from a long time ago.

As long as you are freezing your credit reports, it's a good time to check your free credit reports to verify no nefarious activity has taken place yet. See my post here for more tips on checking your credit reports: http://afcapitalmanagement.com/free-credit-reports/.

Another layer of protection against identity theft can be added by opting out of prescreened/preapproved credit card offers. Visit https://www.optoutprescreen.com/opt_form.cgi to opt out. The site gives you the option for a permanent removal or a five-year removal. If you choose the five-year option, be sure to add a reminder to your calendar to renew it in five years, if not a few months sooner.

What Every Investor Should Know

Alex Foster — Fri, 03 Mar 2017 19:12:33 +0000

Anyone investing in the stock market should know a few basic principles to understand what they are buying into (or what their investment advisor is buying for them). These few points are the bare minimum investors should comprehend before placing any of their money at risk.

Funds come in two basic types - mutual funds and ETFs. Both are collections of stocks and can help diversify a portfolio. Some are index funds, which means they track an index (such as the Dow Jones, S&P 500, small or mid-sized companies, utilities, foreign companies, etc.). Others are actively managed, which means the fund manager tries to beat these indexes. History shows that few managers can actively beat the indexes consistently, especially after adding in their fees.
Some mutual funds charge 12b-1 fees. These fees are for the fund's "marketing and distribution" and are used to pay advisors for putting their clients in these fees. (Fee-only advisors are not paid by mutual funds and do not receive these commissions.) Funds that charge 12b-1 fees have not been shown to perform better than low cost and no-load funds. In fact, the extra fee hurts investors' net returns. Funds charge other fees too and can be as high as 1.5-2.0%. Most index funds are lower than 0.5% with many domestic funds under 0.1%.
Front-end and back-end loads are commissions that are paid from mutual funds to advisors and have no benefit to the investor. Investors should question any advisor who "sells" these funds.
Funds (ETFs and mutual funds) can hold stocks or bonds or can hold both to further diversify and balance its returns. The same or better diversification can be created by an investor by choosing index funds and the allocation to stocks and bonds that fit his or her risk tolerance.
Being diversified means investment risks are lowered by not having too much exposure to a single company. Funds spread out this risk by investing in multiple companies (usually more than 100 and sometimes as many as 2,000 companies). Diversifying beyond one index helps reduce risk further because some years one sector of the market rises or falls more than others. By owning different sectors, investors have less exposure in the bad times, but are certain to have some exposure in the good times.
Deciding which fund or stock to sell each year based on if it did not perform well in the prior year is the opposite of a winning strategy. Investments should be chosen on a balanced and diversified basis with the understanding that different sectors may perform better than others in a given year, but by rebalancing annually the longer-term results will improve. Selling portions of the best funds and stocks to buy more of the funds that did not perform as well creates a buy-low, sell-high set-up. The theory is that the same sector rarely outperforms the other sectors for multiple years in a row, so by taking profits annually, an investor can invest sell while a sector has already had its success and move it to a sector that is poised to rebound.
Every account needs to be diversified. If an investor has a 401(k) through work, a traditional IRA, and an after-tax brokerage account, each account needs to be diversified on its own to allow for annual rebalancing.
Many mutual fund and ETF companies invest in the same companies (by sector). This allows investors to invest with the lowest cost provider and diversify on their own or with the help of an advisor. Investing through different fund companies (Vanguard, Fidelity, T. Rowe Price, Schwab, etc.) does not further diversify holdings. The investments made through the funds is what matters.
Historically, stocks have outperformed bonds, but a portfolio that holds both stocks and bonds and is rebalanced annually tends to perform better over time.
Investment performance should be judged on risk, income, and growth. Simply because an investment grows quickly does not make it the best choice for every investor. Some investors need to have less risk than a high growth investment might offer. While a riskier investment may have a greater return, it can also have larger losses.
Dividends have accounted for as much as 45% of the S&P 500's return in the past three decades. Dividends are not just for those investors who are retired. Every investor can benefit from dividend payments. Reinvesting these dividends in the same stock or fund is not as important as using the cash received to help rebalance a portfolio to remain diversified.
When investing for short-term goals, stocks are too risky in most cases.

I'll cover the pros and cons of mutual funds vs ETFs in another post.

IRA & 401(k) Contribution Limits 2017

Alex Foster — Mon, 23 Jan 2017 16:57:00 +0000

Traditional IRA contribution limits are not only limited to a specific dollar amount, but the IRS also limits the deductibility of contributions if the participant and/or spouse have access to a 401(k) plan at work. If you (or your spouse if you are married) do not have a 401(k) plan at work, you can deduct your full contribution, up to the allowable cap that applies to all other contributors too.

For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Additional Limits

401(k), 403(b), most 457 plans, and federal government's Thrift Savings Plan contribution limits remain at $18,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.
The limitation used in the definition of highly compensated employee (HCE) remains unchanged at $120,000.
Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation, or $54,000 ($53,000 for 2016).

5 Reasons Debt is Your Enemy

Alex Foster — Tue, 20 Sep 2016 18:39:27 +0000

Most people will agree that debt is a bad thing. I'm not talking about a reasonable mortgage on your home or a five-year car loan at a low interest rate. Debt on credit cards that you cannot pay off each month or a six or seven-year car loan on a car you won't keep until the end of the loan term is bad debt. Even a home mortgage that is a struggle to pay each month is the bad debt I'm referring to.

These five of the reasons debt is your enemy:

Everything you buy costs more. When you owe money on a credit card, every purchase you make takes away from funds that could be used to reduce your debt. Since you are paying interest on your debt, you are effectively paying interest on every new purchase, even if you don't use your credit card to buy the new items. In other words, if you didn't buy something new, your cash could be used to reduce your debt which would reduce your interest payments.
You reduce retirement savings rate. Carrying debt means you are paying interest on what you owe instead of receiving interest on your savings. Missing out on your savings paying you means you are missing out on compound interest working in your favor. In addition, all debt payments are funds that are allocated to paying for something you bought in the past, not funding your future retirement.
Your standard of living when you reach retirement will not come close to what you've come accustomed to. If you are living beyond your means before retirement, you cannot expect to be able to live the same lifestyle when retired on a reduced income. And that's if you can figure out how to retire at all while paying off debt.
Managing a surprise economic event can quickly become untenable. If you carry debt rather than keeping a fully funded emergency account, you are not in a position to handle surprise expenses. Home owners and car owners quickly learn that things break and the older the house or car, the less likely a warranty will cover it. While not everyone gets sick and has to spend time in a hospital, a short hospital visit can be very expensive, even with insurance. Deductibles and coinsurance can add up quickly and push credit cards to their limits for those who are already in debt.
Debt causes stress. Carrying credit card debt and knowing you still owe someone else money for your possessions is a major cause of stress in many households. Those who fund vacations with credit card debt find the experiences much less relaxing. Even for people who have a plan to pay off the debt within a year or two, the concern over what would happen if they lost their job can fester into health and/or marriage issues.

Getting out of debt is not easy. It takes a change in lifestyle for most people who cannot figure out how to make more money in their careers. The important step is to start making a change in spending habits. Even small changes can have dramatic effects.

FDIC or SIPC – Who is Protecting Your Assets

Alex Foster — Wed, 13 Jan 2016 22:06:07 +0000

Most people are familiar with the Federal Deposit Insurance Corporation (better known as "the FDIC"). We hear these letters at the end of every bank commercial to let us know our deposits are insured in case there is another "run" on a bank or if a single bank goes under. The FDIC insures deposits up to at least $250,000 in checking accounts, savings accounts, money markets, and CDs. The FDIC does not insure annuities, mutual funds, stocks, bonds, ETFs, or government securities and may not cover amounts over $250,000.

The $250,000 limit is per depositor, per insured bank and for each account ownership category. This wording opens some opportunities to get more coverage than $250,000 if you need it. A depositor could use multiple banks to spread around their savings and can have accounts set up in different categories, such as single name accounts, joint accounts (with spouse or children), trust accounts, and certain retirement accounts.

This sounds great if you are not an investor who is looking for more than a low interest account and wants to keep their assets with one bank or broker. The FDIC doesn't help this group of people, but the Securities Investor Protection Corporation (SIPC) does. The SIPC protects customers if their brokerage firm fails. Their protection covers up to $500,000 per account (with a $250,000 limit for cash).

The SIPC protects the custody function (the holding and record keeping of stocks and bonds) of broker dealers. It does not protect against loss of value if you chose an investment that loses value. (Put options can be used for that type of insurance.) The SIPC works to restore customers' securities and cash to make them available to transfer to a different brokerage that is on a more solid foundation.

As with the FDIC, the SIPC allows protection up to its limit to be used with multiple accounts. These multiple accounts can be at different banks or under "separate capacities", such as an individual accounts, joint accounts, trust accounts, or IRAs.

The probability of a major US bank or broker going under and the depositor/investor losing anything is very slim, but it's good to know the protection is there, even if it has limits. To see if your broker is covered by SIPC, visit the SIPC's list of members and search for their name.

What is Wealthy?

Alex Foster — Tue, 04 Aug 2015 19:21:01 +0000

The adjective "wealthy" is typically used to describe a person (or family) who has a lot of money and/or possessions. I think there is more to being wealthy than just having a lot of "stuff" (or at least more than your brother-in-law). Consider this scenario, if someone has money and material possessions worth $10 million, but has annual expenses of $2 million, his money will not last much longer once his income source stops. To me, a better way to define wealth is if someone can live indefinitely off his or her nest egg. I would consider someone wealthier who has $2 million in savings, but only spends $80,000 per year. $80,000 is 4.0% of $2 million and should last a lifetime following the 4% Rule.

It's not the amount of money people save that determines wealth; it's the percentage of that nest egg that they spend. This is seen in the countless professional athletes who are bankrupt within 10 to 20 years of retiring (and some within four or five years). It's not only the naive athlete who doesn't grasp this concept. The problem runs through most neighborhoods throughout our country. Too many people are concerned with living a lifestyle that is beyond their income's ability to allow for proper savings.

I speak with people on a regular basis whose incomes range from less than $100,000 per year to well over $500,000 per year and I've found the ones who make the most are not always the wealthiest. Often, with higher incomes comes much greater spending. Those who can control their spending have a much greater opportunity to become wealthy, even if they cannot afford to buy the yacht they've been dreaming of.

The beauty of spending a lower portion of your income is that you won't need to save as much to retire and what you save will last longer. For example, a family that makes $200,000 and saves 20% of their income is actually living off $160,000. Using the 4% Rule, they could retire when they reach an investment balance of $4,000,000 versus $5,000,000 for the same family that spends all $200,000 every year. Then again, the family that spends all of their income wouldn't have a nest egg anyway and will never be able to retire and live the way they want to live. This little example doesn't even factor in additional spending cuts a family could have as they near their retirement age, such as a mortgage that's paid off and their kids' college tuitions that are paid off (or at least their responsibility any longer).

No dictionary I searched had a specific number associated with when someone becomes "wealthy" or even mentioned debt. Instead of striving to have more material possessions that could make you appear wealthy, I suggest striving to have a savings/investment balance large enough to produce income that will allow you to retire when you want. For most people, that goal is sooner than later.

Free Credit Reports

Alex Foster — Wed, 22 Apr 2015 13:24:32 +0000

Consumers need to protect their credit at all times. The better someone's credit score is, the lower the cost to borrow money. The lower the cost of borrowing, the more money the borrower gets to keep. Credit reports are important for more than simply borrowing money. Poor reports can affect job applications and apartment requests too. Consumers who regularly review their credit reports can verify the information is correct, catch signs of identity theft and start the process to correct errors before a lender denies a loan or an employer passes on a job offer.

An easy step everyone can take to monitor their credit is to take advantage of the free credit reports available from the three major credit reporting agencies. Reports from Equifax, Transunion and Experian are available at the Annual Credit Report Web site for no cost once per year. Rather than request all three reports at the same time, I suggest rotating through the three agencies once every four months. The process to request a report only takes a few minutes and by spreading out the requests, you minimize the gaps between checks and could catch a fraudulent account sooner. The agencies do not share data, so an erroneous charge shown on one report might not be on the other. In other words, don't expect that by checking one agency you are covered.

The reports do not follow a standard format from agency to agency, but the information is fairly simple to read on each report. You should be sure that each account on your credit report is (or was) yours. You can quickly scan through the lists to find any accounts that have been flagged for late payments or have been sent to collections. If you find any incorrect information, contact the company that issued the account and contact the credit reporting agency to start the process of cleaning up the report.

More Credit Tips:

Equifax says, "It is a good idea to keep your oldest credit account open, as a high average account age generally demonstrates stability to lenders. Also, especially if you have been managing credit for a short time, opening many new accounts will lower your average account age and may have a negative impact."
Experian points out, "When you marry, your credit report stays the same. The only information on both spouses’ reports are joint accounts or those for which one spouse is an authorized user."
Collections are supposed to fall off your credit report after seven years. Transunion says, "If your collection account is more than 7 years old, it should be removed from your credit report. The best way to correct this is by contacting the credit bureaus and explaining the inaccuracy."

When Should you Hire an Investment Advisor?

Alex Foster — Mon, 02 Feb 2015 13:17:04 +0000

As strange as it might sound coming from an Investment Advisor, not every investor needs to hire an advisor. Others might not need an advisor yet, but will need one eventually. Here are some points to consider if you are trying to decide if or when you need an advisor.

1. Have you saved more than $25,000?

$25,000 is not a figure set in stone, but a reference point to use a guide. If you do not have money to invest, you do not need to spend money on an advisor. You could hire an advisor to write a financial plan for you if you haven't started saving yet, but unless you have money to invest, your financial plan should read, "Start saving". Having $25,000 saved shows that you are not living above your means and can have some cash set aside in an emergency fund. After your funding your emergency account, you can begin investing for growth.

2. Will you seek and listen to advice?

Hiring an advisor is great, but if you do not seek and listen to advice, you are throwing money away. Advice you seek can range from how to diversify your investments and what asset allocation is best for you to decisions on how much you spend on your next house or car.

Most people won't reach their retirement goals by only contributing to their 401(k) plans. Working with an advisor who looks at your full financial picture will benefit you, but only if you ask for and listen to the advice. Advice goes beyond allocating your stock and bond investments. Buying a house or car that you can make payments on, but prevents you from saving for retirement will hurt you as bad as or worse than choosing the wrong investments.

4. Do you spend more time on ESPN.com and Facebook than CNBC.com, MarketWatch.com or Briefing.com?

These three examples of financial sites aren't magical. The question is if you are staying informed on what's moving the markets. Investing isn't something you can do easily with only an hour of reading per week. Market conditions change too fast for someone who doesn't have the desire to invest their time in research. Investing without research is simply gambling. 1.0-1.5% is a small fee compared to what you can lose by not taking the time to do your due diligence. (Note: Watching Mad Money on CNBC does not count as research. It's entertainment at best.)

5. Would you rather spend your time doing other things?

The world is full of people who are quite capable of managing their own investments, but if they don't enjoy it, should they focus their attention elsewhere? Just like many people pay someone else to mow their lawns, clean their houses, paint their houses or wash their cars, outsourcing your investment management can free-up your time to spend on something that makes you happy.

6. Do you know the difference between an IRA and a 401(k) or between a Roth and Traditional IRA or how mutual funds and ETFs differ?

If you don't have basic knowledge of finance, it's probably better to hire a professional.

7. Do you need help planning for your children's college expenses?

Have you thought through how much you need to save for college? Do you know what college investment options are best for you? If either of these questions makes you pause, it's worth speaking to an advisor.

8. Could you save money by hiring a fee-only investment advisor?

Investors who manage their own investments are not necessarily paying lower fees than their friend who works with a fee-only investment advisor. Fees can come in different forms. A fee-only advisor charges a percentage of assets or pre-arranged set fee. An individual investor, who isn't careful, may not realize how much he is paying in hidden mutual fund fees (aka high expense ratios). An advisor who does not work on a fee-only basis may use mutual funds with higher fees to receive payments and gifts from mutual fund companies that incentivize them to "sell" their products. Those individual investors who use low cost funds or individual stocks may have too much emotion in their investing. People who are prone to selling late in a bear market or continuing to buy late in a bull market might find their losses can be greater than if they worked with an advisor who can invest without the same emotional considerations.

9. Do you have a clear path on how to reach your financial goals?

Many investors find it helpful to work with an advisor to create a realistic plan on how you are going to reach your financial goals. These plans should include your current and projected spending habits in addition to your current nest egg and savings rate. Much like a personal trainer helps her clients stay in shape, a good advisor will work with you to stay on your path to reach your financial goals.

10. Do you understand the tax consequences of your investing approach?

If you are in a higher tax bracket, the tax consequences of your investment choices can derail what you thought was a good plan. If you do not understand how investing with mutual funds in a non-tax-deferred account (aka taxable brokerage account) can increase your tax burden, you could benefit by working with a fee-only investment advisor who invests with individual stocks and/or ETFs.

In the end, knowing when to hire an investment advisor depends on your specific situation, goals and investment knowledge. Any advisor who is worth working with will not charge you a penny for the first conversation. Start talking to a few advisors and find the one who fits your needs best.

IRA & 401(k) Contribution Limits 2015

Alex Foster — Tue, 13 Jan 2015 16:57:23 +0000

Traditional and Roth IRA Contributions

For 2015, your total contributions to all of your traditional and Roth IRAs cannot be more than:

$5,500 ($6,500 if you are age 50 or older), or
your taxable compensation for the year, if your compensation was less than this dollar limit.

Roth IRA Contributions

Roth IRA contributions are limited based on your modified adjusted gross income (AGI)

If your filing status is married filing jointly or qualifying widow(er), you can contribute up to the limit if you make less than $183,000. If your modified AGI is $193,000 or above, you cannot contribute to a Roth IRA. If your modified AGI falls in between these amounts, you can contribute a reduced amount.
If your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time during the year, you can contribute up to the limit if you make less than $116,000. If your modified AGI is $131,000 or above, you cannot contribute to a Roth IRA. If your modified AGI falls in between these amounts, you can contribute a reduced amount.

IRA Contributions After Age 70½

You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is ...	AND your modified adjusted gross income (modified AGI) is ...	THEN you can take ...
single or head of household	$59,000 or less	a full deduction.
	more than $59,000 but less than $69,000	a partial deduction.
	$69,000 or more	no deduction.
married filing jointly or qualifying widow(er)	$95,000 or less	a full deduction.
	more than $95,000but less than $115,000	a partial deduction.
	$115,000 or more	no deduction.
married filing separately	less than $10,000	a partial deduction.
married filing separately	$10,000 or more	no deduction.

Effect of Modified AGI on Deduction if You Are NOT Covered by a Retirement Plan at Work

If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is ...	AND your modified adjusted gross income (modified AGI) is ...	THEN you can take ...
single, head of household, or qualifying widow(er)	any amount	a full deduction.
married filing jointly or separately with a spouse who is not covered by a plan at work	any amount	a full deduction.
married filing jointly with a spouse who is covered by a plan at work	$178,000 or less	a full deduction.
	more than $178,000 but less than $188,000	a partial deduction.
	$188,000 or more	no deduction.
married filing separately with a spouse who is covered by a plan at work	less than $10,000	a partial deduction.
	$10,000 or more	no deduction.

401(k) and Profit-Sharing Plan Contribution Limits

Deferral limits for 401(k) plans

The limit on employee elective deferrals (for traditional and safe harbor 401(k) plans) is $18,000 in 2015.

Deferral limits for a SIMPLE 401(k) plan

The limit on employee elective deferrals to a SIMPLE 401(k) plan is $12,500 in 2015.

Plan-based restrictions on elective deferrals

These restrictions may further reduce the maximum allowable elective deferrals:

Your plan's terms may impose a lower limit on elective deferrals
If you are a manager, owner, or highly compensated employee, your plan might need to limit your elective deferrals to pass nondiscrimination tests

Catch-up contributions for those age 50 and over

If permitted by the 401(k) plan, participants who are age 50 or over at the end of the calendar year can also make catch-up contributions. The additional elective deferrals you may contribute is:

$6,000 to traditional and safe harbor 401(k) plans in 2015
$3,000 to SIMPLE 401(k) plans in 2015

Compensation limit for contributions

Annual contributions to all of your accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation $53,000 for 2015. In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $265,000 in 2015.