Author Topic: A couple quick questions  (Read 3555 times)

Texan

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A couple quick questions
« on: July 23, 2014, 03:54:55 PM »
i am 23, and have 8.5k in a Roth IRA. Which is post tax dollars. In two years, after graduation I should expect between 70-90k in annual income. I will obviously set up and max out both 401k and IRA, but how do I put money into a Traditional IRA being that it is pre taxed dollars? I have to never "realize" that $5,500 every year to avoid income tax etc.

Furthermore should I put that 8.5k into a new Trad IRA instead of ROTH? I am with Vanguard.

Next, why does MMM put his cash into a Money Market Account like VMMXX? If you need quick access to cash for emergencies then to take this money out requires paying income tax and capital gains tax right?

Thank you guys and girls very much

boarder42

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Re: A couple quick questions
« Reply #1 on: July 23, 2014, 04:09:39 PM »
keep the 8.5k in the Roth you gain nothing moving it. 

the way you get your money if you can fund a trad IRA is at tax season you will get that as a deduction.  at 70-90k if you have a 401k at work you may be outside the limits for Trad IRA contribution to get a discount so look into that. 

Zaga

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Re: A couple quick questions
« Reply #2 on: July 24, 2014, 08:49:01 AM »
Right, leave the money already in a Roth where it is.  Whenever your tax bracket is low it's usually a good idea to fund a Roth IRA instead of a traditional.  In future years that money will continue to grow in the Roth, no matter what you earn.

Secondly, once you graduate and start earning more, you may not be eligible to contribute to a deductible traditional IRA.  You'll need to run your taxes and figure that out before you make a decision on which one to fund.  The income limits for contributing to a Roth are higher than the income limits for taking the IRA deduction, stupid rule but true.  If you can't do a traditional, go ahead with the Roth.

About your money market question, yes, he will pay tax on money taken out of VMMXX.  But not on all of the money, just on the growth!  And since it's a money market, the growth is low so the tax is very low.  No worries.

Texan

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Re: A couple quick questions
« Reply #3 on: July 25, 2014, 04:17:54 AM »
Right, leave the money already in a Roth where it is.  Whenever your tax bracket is low it's usually a good idea to fund a Roth IRA instead of a traditional.  In future years that money will continue to grow in the Roth, no matter what you earn.

Secondly, once you graduate and start earning more, you may not be eligible to contribute to a deductible traditional IRA.  You'll need to run your taxes and figure that out before you make a decision on which one to fund.  The income limits for contributing to a Roth are higher than the income limits for taking the IRA deduction, stupid rule but true.  If you can't do a traditional, go ahead with the Roth.

About your money market question, yes, he will pay tax on money taken out of VMMXX.  But not on all of the money, just on the growth!  And since it's a money market, the growth is low so the tax is very low.  No worries.

I am assuming when that time comes I should consult a tax accountant? And thanks for your help!

Cwadda

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Re: A couple quick questions
« Reply #4 on: July 25, 2014, 04:40:09 AM »
Right, leave the money already in a Roth where it is.  Whenever your tax bracket is low it's usually a good idea to fund a Roth IRA instead of a traditional.  In future years that money will continue to grow in the Roth, no matter what you earn.

Secondly, once you graduate and start earning more, you may not be eligible to contribute to a deductible traditional IRA.  You'll need to run your taxes and figure that out before you make a decision on which one to fund.  The income limits for contributing to a Roth are higher than the income limits for taking the IRA deduction, stupid rule but true.  If you can't do a traditional, go ahead with the Roth.

About your money market question, yes, he will pay tax on money taken out of VMMXX.  But not on all of the money, just on the growth!  And since it's a money market, the growth is low so the tax is very low.  No worries.

I am assuming when that time comes I should consult a tax accountant? And thanks for your help!

You can get an idea of what will happen with this link. http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits
However, it never hurts to verify everything through a tax person. As a side note, make sure you like the tax person and that they are giving you all the information you need.

Zaga

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Re: A couple quick questions
« Reply #5 on: July 25, 2014, 05:53:22 AM »
Right, leave the money already in a Roth where it is.  Whenever your tax bracket is low it's usually a good idea to fund a Roth IRA instead of a traditional.  In future years that money will continue to grow in the Roth, no matter what you earn.

Secondly, once you graduate and start earning more, you may not be eligible to contribute to a deductible traditional IRA.  You'll need to run your taxes and figure that out before you make a decision on which one to fund.  The income limits for contributing to a Roth are higher than the income limits for taking the IRA deduction, stupid rule but true.  If you can't do a traditional, go ahead with the Roth.

About your money market question, yes, he will pay tax on money taken out of VMMXX.  But not on all of the money, just on the growth!  And since it's a money market, the growth is low so the tax is very low.  No worries.

I am assuming when that time comes I should consult a tax accountant? And thanks for your help!

You can get an idea of what will happen with this link. http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits
However, it never hurts to verify everything through a tax person. As a side note, make sure you like the tax person and that they are giving you all the information you need.
Correct, a tax person can help you with the specifics of your case.

However, I would encourage you to learn the basics of the tax code as they apply to you.  There are places online that you can file your taxes for free.  It's pretty easy to use these services from a previous year to get a fairly good estimate of your taxes for this year.  Most rules stay the same from one year to the next, though a lot of things like IRA limits and tax brackets go up with inflation.

Once you have a fairly good idea of the basics - personal exemptions, standard (or itemized) deductions, above the line deductions, IRA's, tax brackets etc., then even if you do use a tax professional you will be able to better understand what they are talking about!