Scrappy Jack

iTrader: (2)

Just to clarify, you cannot "max a Roth" and then "max a traditional, deductible IRA" in the same year. It's a total of $5k, depending on your income level relative to the phaseouts and employer coverage.

Here's a sort of flowchart:

1. Are you married?
2. If yes, is your spouse covered by an employer-sponsored retirement plan?
3. If yes, the income phase-out for a deductible IRA contribution starts at $173k MAGI for the non-covered spouse.
4. If neither of you are covered by a workplace retirement plan, there is no income limit for deductible IRA contributions for either of you.

If you are not married, refer to bullet #4 above.

For the Roth, the phase-out, regardless of coverage by workplace retirement plans begins at $173k AGI for married filing jointly and $110k AGI for single.

If your AGI is over the Roth phase-outs and you do not have any existing traditional IRAs, you can then consider a "backdoor Roth contribution" via non-deductible IRA contributions that you immediately convert to a Roth.

y8s

iTrader: (8)

I am not a tax attorney and hope anyone following my short-form suggestion will read up on the tax implications of anything they do.

that said, I currently do my taxes and THEN contribute to my previous year Roth because I'm phasing out. I haven't been contributing to my regular IRA for personal financial reasons that I wont share here so I haven't had to worry about combined limits. I know annual Roth contributions are less than ideal but it's a small amount and figuring it out earlier is hard and I am lazy and it's a long term investment anyway.

So your suggestion would be to max out the IRA and then convert the phaseout limit to a Roth after you figure out your MAGI?

JasonC SBB

Tinfoil hat? Now this is the dumbest comment in this thread yet.
There's that term, where the person who utters it smugly believes that magic phrase ends a discussion.
I use logic and reasoning, he uses name calling.

What's so "tinfoil" about explaining why the continually increasing deficit is not sustainable and the politicians will be forced to do BIG cuts at some point? And that said retirement accounts may be taxed more heavily when you withdraw, reducing or negating its effective supposed tax advantages? And that you may be better off taking the tax hit now and investing in something else?

Are you and Blaen so stupid that you don't think it's possible that the US Dollar will decline so much that money trapped in a 401k, spread among BS limited mutual funds won't beat inflation over 10 years?

Have you even heard of the late mutual fund trading scandal in 2003? Yes, right, "diversify" your money into small cap stocks, large cap stocks... rrright, do you actually think they don't go up and down together?

Are you even aware that US Stocks has already suffered a "lost decade" from 2000-2010?

Do you trust Wall St cheerleaders?
Politicians?


Back to the original topic, the best retirement account is the one available to small business owners.
I forget what it's called, but it resembles a Roth but you can contribute more into it, and IIRC withdraw it before retirement with lower penalties. The last part is the most important, because money that you can't withdraw without penalties before you turn 62, is not worth anything if you can't take it out without huge penalties at age 52. I am in this conundrum now because I have an opportunity to invest in a potentially profitable business and it is frustrating that I have all this money in a 401k I can't tap.

Oh, and lastly, the retirement age (at which you can withdraw from retirement accounts penalty free), will very likely be increased over time. This is the very obvious way to improve the sustainability of retirement in an economy, as populations age and people live longer. Many European countries are doing or fixing to do it. This is another strike against retirement accounts you can't withdraw til a certain age.

Braineack

iTrader: (62)

when do you think the US wil ever pass another budget again....i dont see it ever happening again.

Scrappy Jack

iTrader: (2)

Again, taxes are confusing and terminology is important. I assume you mean that you make a Roth contribution for the previous calendar year (Jan - Dec), but within the current tax year (Jan - Apr). Said another way, you prepare your 2011 tax return in March of 2012 then make a 2011 Roth contribution prior to filing (or the April 2012 deadline, whichever comes first).

The above makes perfect sense, especially for people who are near or close to the phase-outs to avoid things like excess contributions, etc.

I am not making any indivudal recommendations, suggestions or giving personal financial planning guidance to anyone in this thread. I am not a tax return preparation professional and recommend seeking the guidance of a CPA or other tax advice professional before implementing any financial planning.

I am just trying to clarify general information that (like anything you read on the internet) should always be fact-checked with a primary source like IRS.gov.

JasonC SBB

Exactly. And the MMT'ers can't explain how a continually increasing deficit can be sustainable without mass inflation. Nor explain gov't that continually increases its expenditures as a % of GDP can possibly be a good thing. Hell, even Bernanke himself has warned Congress about it.

y8s

iTrader: (8)

take out a 401k loan and invest the loan funds in your opportunity.

you will have to pay a certain fixed interest rate on the loan but you pay it back to yourself in small amounts over 5 years. but at least you can withdraw the money and use it as you see fit.

or dont pay it back and pay the penalty.

Scrappy Jack

iTrader: (2)

Jason - I am not going to respond to this stuff in this thread. Please see here.

y8s and mgeoffriau - You can feel free to PM me with any specific questions. I will not give specific recommendations or financial planning advice, but may be able to answer general questions in more detail.

Braineack

iTrader: (62)

nah bro, everything will be okay when all the tax breaks expire on Jan. 1, 2013.

JasonC SBB

I looked into that, and depending on the company, you can usually only "borrow" your 401k for certain dire health emergencies or for first time home buying.

blaen99

iTrader: (6)

http://www.individual401kloan.com/

Are you certain, Jason? This contradicts what I understand about them, and even what the above company offers.

Braineack

iTrader: (62)

but you can pull out of your roth...

blaen99

iTrader: (6)

That's what she said!

/Nuff threadjacking, I had to be immature!

Braineack

iTrader: (62)

god's contraceptive.

blaen99

iTrader: (6)

That's what Santorum said!

/Okay, seriously, last threadjack I do. Untill Brainy sets me up again.

Braineack

iTrader: (62)

gives a new meaning to the term pull and pray

or a least puts it in a new light.

y8s

iTrader: (8)

ask your plan administrator. for mine, I just have to give a reason. any reason.

I suspect they'd only reject it if my reason was "start a competing company".

Scrappy Jack

iTrader: (2)

I believe there may be some confusion between a 401k loan and a hardship withdrawal/distribution.

rmcelwee

iTrader: (1)

FWIW, hardship distributions carry a penalty and taxes. No way to really get your money out until age 55.