Author Topic: Other tax deductible account options  (Read 2655 times)

1tolivesimply

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Other tax deductible account options
« on: May 14, 2013, 10:27:24 AM »
Hello fellow mustachians,

First of all, I would have to admit that I haven't researched a whole lot, but most of my searches bring up the same options, 401(k), IRA (traditional & roth) or HSAs.

Through my employer, I'm fully funding a 401(k) and getting the company match, however, due to income, I do not qualify for an IRA roth, or for the tax deduction of a traditional one; I don't know exactly how the HSAs work, but I have a low enough deductible/out of pocket maximum that I don't think it'd be of any benefit to put money on a HSA.

Am I missing any other options out there?

Thanks!

sol

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Re: Other tax deductible account options
« Reply #1 on: May 14, 2013, 10:30:22 AM »
You might Google backdoor Roth.  My understanding is that Roth IRAs have effectively zero income restrictions anymore since you can convert at any income.

Fite4Rite2Party

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Re: Other tax deductible account options
« Reply #2 on: May 15, 2013, 12:56:44 AM »
You might look into "voluntary after-tax personal contributions" to your employer-sponsored 401(k) plan. One interesting point of the Taxpayer Relief Act (H.R. 8) is that it contains a provision that would allow you to convert these voluntary after-tax contributions into Roth amounts within the plan. You do have to pay tax on the investment return when you do the conversion; however, if you do the conversion as soon as possible after the contribution, this tax would be negligible. The result is that your 401(k) ceiling is pushed above the $17.5k limit in the form of additional Roth contributions (it will actually show up as "Roth conversion" in your account). The maximum allowable voluntary after tax personal contribution is set by your retirement plan provider (mine is $30k). PM me if you want the details and I can send you what I received from my HR department.

foobar

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Re: Other tax deductible account options
« Reply #3 on: May 15, 2013, 08:09:17 AM »
This works well as long as you don't have an another IRA.

If you can do a HSA, it is very similiar to an IRA. Often you need to keep a minimal amount of money (5k or so)in something like a money market but you can invest the rest and then later in life it pretty much turns into an IRA.

If you have self employed income, SEPs are the bomb with 50k limits.

You might Google backdoor Roth.  My understanding is that Roth IRAs have effectively zero income restrictions anymore since you can convert at any income.

1tolivesimply

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Re: Other tax deductible account options
« Reply #4 on: May 15, 2013, 10:20:13 AM »
Thanks for the suggestions, I will do some research; I looked into the After tax personal contributions on my company's HR website and couldn't find anything, I may need to make a few calls.

Joet

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Re: Other tax deductible account options
« Reply #5 on: May 15, 2013, 11:48:14 AM »
I do this with my 401k:

pre-tax contribs: $17.5k/yr, employer match $6.5k/yr [24k] and I add $25k/yr of post-tax 401k which gets in-service-withdrawn to a Roth IRA I have outside the plan [transfer]

Net of:
$24k pre-tax 401k
$25k Roth contribs from post-tax 401k
[below the combined $51k limit by a little bit, I try to manage this # to get it closer]
+$5.5k of backdoor Roth contribs/yr [IRA to Roth immediate conversion]
=$24k pre-tax 401k/yr
=$30.5k Roth contribs/yr

+$3k of net HSA contribs [most by employer]
=$57.5k/yr of tax-advantaged savings, only $5.5k of which is outside my employers plan

I don't fall within the contribution limits for a Roth either, yet I am investing ~$30-$31k/yr in it :)