After tax IRA contribution to reduce federal taxes?

[infromsea]

Mod please delete

[boarder42]

there is no reason to put it in an IRA then roll it to a ROTH IRA this year as that doesnt change your tax rate you could either A put it in a Roth from the git go or B put it in a trad IRA. 

you owe taxes b/c your w4 is claiming more deductions than you have.  adding money to her 401k isnt going to change the fact that at your current deduction claim you owe taxes.  i would contribute to the trad IRA to lower your overall tax burden ... but there is a lot of information missing here.

[ShoulderThingThatGoesUp]

To get rid of that tax payment you need to put in $4333.33 to a tIRA. That should be plenty to buy shares of good ETFs - it certainly is for Schwab.

[vivophoenix]

I do not get the money all alone comment

nor do i understand why you need to group money to maximize compounding interest.

[NoStacheOhio]

To get rid of that tax payment you need to put in $4333.33 to a tIRA. That should be plenty to buy shares of good ETFs - it certainly is for Schwab.

Do this, invest in a commission-free index ETF, then stop worrying about it.

[vivophoenix]

I do not get the money all alone comment

nor do i understand why you need to group money to maximize compounding interest.

I'm sure I'm butchering my attempt to explain my thinking.

This would be a new IRA, we'd open it solely for this purpose without intent to add to the account. So, we'd have 4K sitting in an IRA, the rest of retirement is in her 401K/my TSP, slightly reducing returns if the money was all in one account.

thats what i do not understand. why does having money in separate accounts reduce returns?

[dandarc]

To get rid of that tax payment you need to put in $4333.33 to a tIRA. That should be plenty to buy shares of good ETFs - it certainly is for Schwab.

That's right at what we calculated to make us "even" with the big uncle, we can easily swing it, just don't want to "strand" the money in a single account.

The only valid reasons to be wary of a small account are fees and simplicity.  Simplicity is more of a subjective measure.  If you're at a place like Vanguard, we're talking like 0.2% or less vs. 0.05% if you have a larger account to pool money with it.  So fees in this scenario are not that big a deal at all either.

[BarkyardBQ]

I do not get the money all alone comment

nor do i understand why you need to group money to maximize compounding interest.

I'm sure I'm butchering my attempt to explain my thinking.

This would be a new IRA, we'd open it solely for this purpose without intent to add to the account. So, we'd have 4K sitting in an IRA, the rest of retirement is in her 401K/my TSP, slightly reducing returns if the money was all in one account.

thats what i do not understand. why does having money in separate accounts reduce returns?

Apparently compound interest only works if the 1 dollar is in 1 account and not in 100 accounts? :D

I think he's more or less having an issue with the fact that the IRA contribution, would be inaccessible were they to career hop. They would not be able to use that money (or it's growth) from the taxable account. Alternatively, I don't think he understands that holding index funds for 'short term' expectations is a gamble of returns, and if OP is planning on having a lack of income in the next 2 years, they should be holding cash not funds... and may need some financial perspective from a case study.


OP, can you and your wife and all expenses survive on her income?
If the answer is yes, evaluate your risk against having an emergency fund in cash or index funds.
If the answer is no, put your emergency fund in cash.

Again if yes, you should both be maxing out any available tax deferred retirement accounts ALL THE TIME, once your emergency fund is set. If you decide to quit, you can either plan ahead a few months and hold some extra cash, or you can jump ship, and survive on your wife's income. Trying to shuffle around which account gets contributions, tax favors, if/when you decide to change careers sounds like a bit of a headache? I'd suggest getting your emergency fund setup, organize your retirement strategy via tax deferred accounts, and then reevaluate as you find the need to look ahead.


Other than that, I don't know what else is wrong with having an IRA open, that either can't get more contributions now, or in a few years. You take advantage of the tax code where it let's you when you can. In 2014, we couldn't defer any income, we had high salaries, and could only contribute to Roths. Those 2014 Roths, still just have 2014 contributions in them. While our traditional accounts et al keep getting stacks and stacks.... Nothing wrong with the Roth accounts just sitting there collecting dust *ahem, interest*.

[NoStacheOhio]

This would be a new IRA, we'd open it solely for this purpose without intent to add to the account. So, we'd have 4K sitting in an IRA, the rest of retirement is in her 401K/my TSP, slightly reducing returns if the money was all in one account.

Odds are this won't be the last time you run into this kind of tax situation. Even with the best predictions, things can happen and you can end up owing at the end of the year. In that case, just throw some cash into this account again and you're good to go.

[ShoulderThingThatGoesUp]

I do not get the money all alone comment

nor do i understand why you need to group money to maximize compounding interest.

I'm sure I'm butchering my attempt to explain my thinking.

This would be a new IRA, we'd open it solely for this purpose without intent to add to the account. So, we'd have 4K sitting in an IRA, the rest of retirement is in her 401K/my TSP, slightly reducing returns if the money was all in one account.

So make it a goal next year to max it out and contribute $5500 after you max out your accounts through work. Look at it this way - which costs you more money, the maybe slightly lower returns you get because you'll have $35 or something left over that's less than a share price (the 0.03% ER you'd pay at Schwab with SCHB doesn't matter) or paying 15% taxes on the money?

[boarder42]

well because at vanguard he technically pay double the fee if he doesnt have 10K b/c he cant do admiral shares.  other than that i have no idea what he is talking about with compound interst.

[BarkyardBQ]

well because at vanguard he technically pay double the fee if he doesnt have 10K b/c he cant do admiral shares.  other than that i have no idea what he is talking about with compound interst.

VTI costs the same, and if he's only gonna do this once, that's probably the best place. He should contribute to get a whole number of shares, leaving no cash in the account, and leave it til he can add more. I'm still confused too. :shrug

[ShoulderThingThatGoesUp]

well because at vanguard he technically pay double the fee if he doesnt have 10K b/c he cant do admiral shares.  other than that i have no idea what he is talking about with compound interst.

So that's what, 0.06%? Open it at Schwab if that bothers you, or realize it barely matters. Nothing compared to the 15% income tax rate on the money.

[MoonShadow]

I do not get the money all alone comment

nor do i understand why you need to group money to maximize compounding interest.

I'm sure I'm butchering my attempt to explain my thinking.

This would be a new IRA, we'd open it solely for this purpose without intent to add to the account. So, we'd have 4K sitting in an IRA, the rest of retirement is in her 401K/my TSP, slightly reducing returns if the money was all in one account.

Just do it, if you are so inclined; and if in a couple years you run into a similar problem, then do it again with this same account.  You are fretting over the smallest of distinctions.  Do whatever your first instinct was here, it will work out fine.

[Runrooster]

The advice in this thread confuses me. First, if you can afford to save in the tIRA, go ahead and put in the max, which is 5500 per person.  You should get a tax refund for overpayments.  If you are in the 15% bracket, you might think about investing in a Roth IRA with after tax contributions (the title of your post).  Yes you will have to pay the $650 in addition to what you've already paid, but then you're starting an account from which you can draw down in 5 years. As long as you file and pay taxes by April 15, there is no penalty under $1000 (right?).  If you can't afford the full 11,000, then sure put in less.  I'm just not sure how the $650 determines the size of the ira.

[boarder42]

well because at vanguard he technically pay double the fee if he doesnt have 10K b/c he cant do admiral shares.  other than that i have no idea what he is talking about with compound interst.

VTI costs the same, and if he's only gonna do this once, that's probably the best place. He should contribute to get a whole number of shares, leaving no cash in the account, and leave it til he can add more. I'm still confused too. :shrug

Unless you have a site that lets you trade it free it cost to make the trade

[vivophoenix]

well because at vanguard he technically pay double the fee if he doesnt have 10K b/c he cant do admiral shares.  other than that i have no idea what he is talking about with compound interst.

VTI costs the same, and if he's only gonna do this once, that's probably the best place. He should contribute to get a whole number of shares, leaving no cash in the account, and leave it til he can add more. I'm still confused too. :shrug

Unless you have a site that lets you trade it free it cost to make the trade

i am confused, both fidelity and vanguard let me make free trades. either way people are arguing super tiny semantics.

dump the money in the IRA and lesson learned for next tax season.