stupid personal finance question

[Idiopathic]

---

Members do not see this ad.

So, if you make over like 160K and you have a work-sponsored retirement plan (401K, etc), then you cant deduct contributions to a personal IRA. Is this right? TurboTax wont let me do it, at least.

So my question is: is there any benefit to having/contributing to an IRA in this situation, rather than just having an investment account?

 

[dA pilot]

So, if you make over like 160K and you have a work-sponsored retirement plan (401K, etc), then you cant deduct contributions to a personal IRA. Is this right? TurboTax wont let me do it, at least.

So my question is: is there any benefit to having/contributing to an IRA in this situation, rather than just having an investment account?

The deduction for a traditional IRA of married filing jointly with a company sponsored retirement plan gets phased out between $167000 and $177000. You can not deduct it off your taxes.

If you do contribute, it is considered as nondeductible IRA. You can then immediately roll it over into a ROTH IRA and pay no taxes on the investment when you take it out during retirement since you have paid taxes on it already. That is the benefit than just having it in an investment account.

You do have to pay the taxes of the percentage of the basis of the deductible IRAs in your portolio though.

 

[Idiopathic]

is that just a 2010 phenomenon or is that something that is continuing on?

 

[dA pilot]

is that just a 2010 phenomenon or is that something that is continuing on?

Bush signed a bill in 2006 to lift the income limits to convert to a Roth IRA. It will be ongoing until another bill is passed.

 

[InductionAgent]

So, if you make over like 160K and you have a work-sponsored retirement plan (401K, etc), then you cant deduct contributions to a personal IRA. Is this right? TurboTax wont let me do it, at least.

So my question is: is there any benefit to having/contributing to an IRA in this situation, rather than just having an investment account?

Generally, it's advisable to max out any employer-matched contributions into a tax-deferred retirement plan, because it's free money (that's also tax-sheltered).

As for the IRA, I agree with looking into the Roth conversion. Even if you decide not to convert to a Roth, your non-deductible traditional IRA holdings are still tax-deferred, so at least it can experience better growth until your retirement.

 

[RabbMD]

Da almost had it right. That range is the phaseout for married filling jointly if you spouse does not have access to a workplace retirement plan, but you do, for your spouses ira. For the person that has access to a work retirement plan, themselves the phaseout starts around $100,000. If you are eligible for a direct roth, then you should do that before a backdoor roth, which is what this nondeductible ira to roth conversion is often referred to. Thefinancebuff.com has the best description of this manuever i have seen. I have done it for myself and my wife in 2009, 2010, 2011 so far for a total of $30,000 into roths.

 

[IlDestriero]

You can also roll over a traditional (tax advantaged) 401k/IRA into a Roth where the money will than grow tax free. I thought it was for 2010/2011 only, at least that's what I was told. The catch is you have to pay tax on the profits now when you make the change over. It's a good idea if you can afford the big tax hit and have a long time for the money to grow. Painful now but likely very profitable in 20 years when you want the money.

 

[Arch Guillotti]

You can also roll over a traditional (tax advantaged) 401k/IRA into a Roth where the money will than grow tax free. I thought it was for 2010/2011 only, at least that's what I was told. The catch is you have to pay tax on the profits now when you make the change over. It's a good idea if you can afford the big tax hit and have a long time for the money to grow. Painful now but likely very profitable in 20 years when you want the money.

I think you can spread out the tax hit over 2 years, and you can undo the transaction for a bit if you want to.

 

[imfrankie]

Yep, two years is an option. I took the hit this year and bit the bullet. I am betting taxes are only going up and I'd rather pay now than later.

 

[dA pilot]

I think you can spread out the tax hit over 2 years, and you can undo the transaction for a bit if you want to.

I believe you can only spread the tax hit over 2 years if you converted in 2010. You pay the taxes in year 2011 and 2012. So if you convert now 2011 and in the future, you have to take the tax hit the year you converted.