Author Topic: Is more better when it comes to retirement funds?  (Read 2102 times)

WootWoot

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Is more better when it comes to retirement funds?
« on: February 19, 2017, 11:03:47 AM »
Hello folks--

I've got a 403(b) at work (TIAA-CREF) that I've been contributing to for a number of years. It's through work, I'm making the maximum contribution and it's at about $72K.

I recently opened a Roth IRA through Vanguard, and was considering opening a regular IRA in order to avoid tax on the interest I received from a mature EE bond. Someone (not on this board) told me if I'm maxing out my 403(b), I won't be able to use that regular IRA contribution as a tax shelter/dodge/whatever it's called. 

I'm 52 years old, with a nonworking spouse who is 60 and should be able to start collecting on my Social Security at 62 (according to the CREF rep).

Questions are:

1) Is it true about not being able to avoid tax on the EE interest?

2) Is it slightly overkill to have three different retirement accounts? Is there an advantage to it?

Thanks!

mandy_2002

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Re: Is more better when it comes to retirement funds?
« Reply #1 on: February 19, 2017, 11:25:18 AM »
If you have a plan through work, the income limit for a deductible IRA is smaller than if you don't have a retirement plan.
https://www.irs.gov/retirement-plans/ira-deduction-limits
I'm not sure how getting existing investments into a retirement account works. I always put cash in and then buy what I want.
I personally have a former employer's 401k and HSA in one company and 3 accounts in a second company (Roth IRA, IRA, and just a plain old investment account). If you keep your holdings simple it shouldn't be to difficult, just make sure the way you're saving each year is the most advantageous to your taxes. Different years may bring different advantages based on your income variation.

WootWoot

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Re: Is more better when it comes to retirement funds?
« Reply #2 on: February 19, 2017, 11:48:49 AM »
Thank you for replying. I'll follow that link and check it out.


GizmoTX

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Re: Is more better when it comes to retirement funds?
« Reply #3 on: February 19, 2017, 12:06:19 PM »
You can't avoid taxes on an EE bond; it accumulates tax deferred, not tax free. You do get to pick the year you sell it. However, if it has already matured, you're losing any future interest.

IRA contribution limits apply to the sum total of multiple non-tax retirement accounts & depending on if they are funded pre or post tax. Multiple retirement accounts are OK if there's a reason for each of them, i.e. 401K (payroll deduction, reduces MAGI up to defined limits, & taxed as ordinary income when redeemed), traditional IRA (reduces MAGI up to defined limits or just defers taxes on the interest if not, & taxed as ordinary income when redeemed), & Roth IRA and/or Roth 401K (post-tax contribution & tax-free redemption). You could have a tIRA created from a rollover from a 401K from an employer you no longer work for. There are also SEP-IRA & SimpleIRA accounts for the self-employed & small business.

WootWoot

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Re: Is more better when it comes to retirement funds?
« Reply #4 on: February 19, 2017, 12:33:23 PM »
I didn't realize there's no way to avoid paying tax on the bond. Somehow I thought it would all come out in the wash Thanks for responding!

MDM

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Re: Is more better when it comes to retirement funds?
« Reply #5 on: February 19, 2017, 01:02:41 PM »
I didn't realize there's no way to avoid paying tax on the bond. Somehow I thought it would all come out in the wash Thanks for responding!
You can avoid paying tax on the bond if your adjusted gross income (AGI) is less than your deduction and exemption amounts.  If that is what you mean by "com[ing] out in the wash" then you are correct.

But if your AGI is higher, then your bond income will be taxed.

"Someone" is wrong and mandy_2002 and Gizmo_TX are correct about the relationship between 403b and IRA contributions.  In fact, contributing more to a 403b might reduce your MAGI enough to allow deductible tIRA contributions.

WootWoot

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Re: Is more better when it comes to retirement funds?
« Reply #6 on: February 19, 2017, 01:06:13 PM »
I'm in the 15% tax bracket and I didn't make more than $35,000 in 2016 (the year in question), if that helps clarify things. The bond interest was around $17K.

MDM

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Re: Is more better when it comes to retirement funds?
« Reply #7 on: February 19, 2017, 01:18:33 PM »
I'm in the 15% tax bracket and I didn't make more than $35,000 in 2016 (the year in question), if that helps clarify things. The bond interest was around $17K.
Based on that, you definitely may deduct a tIRA contribution.

Whether you want to use traditional or Roth IRA is a different question.  You could use the case study spreadsheet (especially if you know a little about Excel data tables) to check your marginal savings rate.  Or calculate your taxes with different 403b or tIRA amounts and calculate (change in tax) divided by (change in contribution amount) directly.

WootWoot

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Re: Is more better when it comes to retirement funds?
« Reply #8 on: February 19, 2017, 02:45:11 PM »
MDM, I thought I could not use the Roth as a tax deduction b/c of the IRS rules.

MDM

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Re: Is more better when it comes to retirement funds?
« Reply #9 on: February 19, 2017, 03:00:56 PM »
MDM, I thought I could not use the Roth as a tax deduction b/c of the IRS rules.
That is correct.  Might have misled you by using tIRA as a shortcut for traditional IRA...?

Thus the second paragraph about Traditional versus Roth.

WootWoot

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Re: Is more better when it comes to retirement funds?
« Reply #10 on: February 19, 2017, 04:59:37 PM »

Ah, I see. Thanks again!