Author Topic: Dump $5,500 into a new Roth IRA before year end?  (Read 3171 times)

SyZ

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Dump $5,500 into a new Roth IRA before year end?
« on: August 26, 2016, 03:13:52 PM »
I'm currently putting 18k into my 401(k). I have 12k debt left under 3.3%, and nothing else. I am just saving for a house at this point, as I don't feel it's worthwhile to pay off that 3.3% interest. However, I have no Roth set up as of now, and I know if I don't do anything by 2017 I miss this year. That's one more year of compound interest, and I'm only 31. I imagine that come December, when I have a stable 5 figures in my bank account, I'll probably bite the bullet and toss $5,500 into an account as one huge lump sum. Do I get access to better funds and ratios if I come in over $5k? Do I match it to what I'm investing in in the 401(k)? Do I accept the fact that on a 57k salary I can't put 18k into my 401k pre-tax, then 5.5k post tax, and still get into a house before I die?

Nicster

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #1 on: August 26, 2016, 03:32:24 PM »
Some food for thought:

1) You actually have until April 17, 2017 (tax day) to make 2016 Roth IRA contributions.
http://www.rothira.com/roth-ira-rules

2) You can use your Roth savings as a down payment for a first home if you meet certain requirements:
http://www.rothira.com/blog/should-i-use-a-roth-to-buy-a-house

Hope this helps!

SyZ

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #2 on: August 26, 2016, 03:39:31 PM »
Re: 1) Awesome! Didn't know

Re: 2) Still not sure the purpose of this or what the catch is. It sounds like I can put $5,500 into an account and then in 3 years I can either keep it there or take it out for the down payment. So, why would I (or anyone) want to leave it in the bank instead of doing this? Because I'm an idiot and didn't know about this before starting to save? Because it's not this easy? Edit: Upon further reading, doesn't seem that great. $10k max, and I need it open 5 years. But I'll be able to buy one within 5 years regardless, and $10k won't be a dealbreaker either way.

jim555

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #3 on: August 26, 2016, 03:58:43 PM »
I would have loved to be able to put $5.5k in a Roth IRA when I was working.  Unfortunately it gets phased out if you have a retirement plan at work and make too much money.

A Roth is very sweet.

MVal

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #4 on: August 26, 2016, 04:16:14 PM »
I would have loved to be able to put $5.5k in a Roth IRA when I was working.  Unfortunately it gets phased out if you have a retirement plan at work and make too much money.

A Roth is very sweet.

I've only done Roth to this point, but I'm electing this year to open a traditional IRA and fully fund it as my income is at point where I can potentially get the full Saver's credit if I get my taxable income low enough this year. I'm not sure what I'll do next year, but I think I'll probably continue with the traditional IRA.

SyZ

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #5 on: August 26, 2016, 04:25:02 PM »
I would have loved to be able to put $5.5k in a Roth IRA when I was working.  Unfortunately it gets phased out if you have a retirement plan at work and make too much money.

A Roth is very sweet.

I don't understand? I thought I was able to put 18k into an IRA (my 401(k)) and 5.5k into a Roth IRA (this account with Vanguard / Fidelity / etc.) total per year?

Tjat

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #6 on: August 26, 2016, 04:38:56 PM »
 Depending on your income, you may not qualify for a normal contribution into a Roth. However look up a backdoor Roth option to get around this.  Also keep in mind that with a Roth, you can withdraw your contributions at any time with no penalty. I believe the 10K limit only speaks to your ability to withdraw your investment returns

LeRainDrop

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #7 on: August 26, 2016, 04:40:02 PM »
I would have loved to be able to put $5.5k in a Roth IRA when I was working.  Unfortunately it gets phased out if you have a retirement plan at work and make too much money.

A Roth is very sweet.

I don't understand? I thought I was able to put 18k into an IRA (my 401(k)) and 5.5k into a Roth IRA (this account with Vanguard / Fidelity / etc.) total per year?

Syz, yes, at your age and income for 2016, you can put up to $18,000 in your 401(k) AND up to $5,500 into an IRA.  Both types of retirement accounts could be either "traditional" (pre-tax) or "Roth" (post-tax).  Most employers only offer the traditional 401(k), though there are some who offer both traditional 401(k) and Roth 401(k).  In case your employer offers both kinds of 401(k)s, your personal contribution to both still could not total more than $18,000.  And, yes, if I were you, I would take advantage of the Roth IRA and deposit $5,500 with Vanguard.
« Last Edit: August 26, 2016, 04:41:36 PM by LeRainDrop »


jim555

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #9 on: August 26, 2016, 05:20:42 PM »
It is important to start a Roth IRA, even with $1, so the first 5 year clock can get started.

johnny847

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #10 on: August 26, 2016, 06:41:55 PM »
I would have loved to be able to put $5.5k in a Roth IRA when I was working.  Unfortunately it gets phased out if you have a retirement plan at work and make too much money.

A Roth is very sweet.

I don't understand? I thought I was able to put 18k into an IRA (my 401(k)) and 5.5k into a Roth IRA (this account with Vanguard / Fidelity / etc.) total per year?

You are conflating an IRA and a 401k.

You can put 18k in a 401k. A 401k is NOT an IRA.

terran

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #11 on: August 26, 2016, 06:49:22 PM »
Here are the relevant income limits for contributing directly to a Roth IRA: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016

And for contributing to a deductible Traditional IRA: https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

If you make too much to contribute directly to a Roth IRA you can research making what is commonly called a "backdoor Roth IRA contribution."

katsiki

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #12 on: August 27, 2016, 07:37:49 PM »
It is important to start a Roth IRA, even with $1, so the first 5 year clock can get started.

Can you expand on this?

jim555

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #13 on: August 27, 2016, 08:05:51 PM »
It is important to start a Roth IRA, even with $1, so the first 5 year clock can get started.

Can you expand on this?
"The 5-year rule essentially states that five tax years must pass from when the first contribution is made to (any) Roth IRA, until a qualified distribution can be made. "

https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/

andy85

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Re: Dump $5,500 into a new Roth IRA before year end?
« Reply #14 on: August 27, 2016, 08:45:18 PM »
also, different funds require different minimums and have different (all low) expense rations

-target fudns: $1000 minimum, ER of about .15%
-a U.S. growth or value fund: $3000 minmium, ER of about .47%
-total stock market fund: $10k minimum, ER of .05% ("Admiral Shares" of any fund is a $10k minimum)

personally, I'm doing the target 2060 fund until i have $10k, then transferring it to a total stock market index fund