Tax Q&A: Mortgage Madness

Can I contribute to my 401(k) at work and still fund -- even if partially -- a traditional IRA account? -- M.G.

Yep. As long as you don't exceed the income limitations, you can contribute to both.

For 2006, the maximum contribution is the lesser of your earned income or $4,000, or $5,000 if you were age 50 or older at year's end.

But whether that IRA contribution is deductible will depend on your adjusted gross income level. Check out IRS Publication 590 Individual Retirement Arrangements for all of the guidelines, but here are the basics.

For a tax-deductible IRA, if you are single and participate in your company's 401(k), your contribution is deductible as long as your AGI doesn't exceed $60,000.

If you're married and you both contribute to a 401(k), your joint AGI can't exceed $85,000 for 2006. If you participate in a 401(k) but your spouse doesn't, your AGI limit is still $85,000.

If your AGI is higher than the limits above, you may still opt to contribute to a nondeductible IRA. There is no AGI cap on a nondeductible IRA, so it doesn't matter how much money you earn. You just won't get a deduction on your tax return for the contribution. But you will be able to let your earnings grow tax-deferred.

There are AGI limits on Roth IRAs as well. So be sure to check out the IRS' publication to decide which IRA is right for you.