Author Topic: Only 1k in trad IRA  (Read 2900 times)

boarder42

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Only 1k in trad IRA
« on: January 22, 2015, 12:33:22 PM »
so we are over the 96k mark to contribute the full 11000 to IRA's this year

is it worth it to put just the 1k i can deduct in to a trad IRA.  I dont have a current TIRA.  so i would have to open a new one.  i may never put more than this 1k in there.  or i may be able to contribute a small amount next year to it as well but i would assume higher incomes will prevail and our door will be closed.  So is it worth it?
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boarder42

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Re: Only 1k in trad IRA
« Reply #1 on: January 22, 2015, 12:36:28 PM »
Tax savings on the 1k would obviously be 25% or 250 dollars.
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seattlecyclone

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Re: Only 1k in trad IRA
« Reply #2 on: January 22, 2015, 01:03:19 PM »
I might suggest against this $1,000 contribution if you ever want to be able to do backdoor Roth contributions. Having a pre-tax balance in your IRA will prevent you from making tax-free Roth conversions. If your income is low enough to make Roth contributions directly (and you don't anticipate this changing), then don't worry about whether or not you can do backdoor contributions in the future.
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Gin1984

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Re: Only 1k in trad IRA
« Reply #3 on: January 22, 2015, 01:05:26 PM »
Do you have access to a 401k?

boarder42

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Re: Only 1k in trad IRA
« Reply #4 on: January 22, 2015, 01:09:47 PM »
yes i max 401ks & max our IRAs

i'm interested in knowing more about what Seattle said.  is that all true?
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boarder42

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Re: Only 1k in trad IRA
« Reply #5 on: January 22, 2015, 01:16:39 PM »
also what savings/ other things would one subtract from the AGI to get to Spending for the year.

currently subtracting

Mortgage principal(dont plan to have a mortgage in retirement)
Roth contribuitions
all taxes
FICA
taxable savings.
« Last Edit: January 22, 2015, 01:22:12 PM by boarder42 »
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Gin1984

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Re: Only 1k in trad IRA
« Reply #6 on: January 22, 2015, 01:22:30 PM »
yes i max 401ks & max our IRAs

i'm interested in knowing more about what Seattle said.  is that all true?
Eh, then open the account, stick the $1000 in then roll it into your 401k.  Then no problem if you chose to do a back door Roth at a different point.

boarder42

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Re: Only 1k in trad IRA
« Reply #7 on: January 22, 2015, 01:24:44 PM »
you can roll from IRA to 401k?
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seattlecyclone

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Re: Only 1k in trad IRA
« Reply #8 on: January 22, 2015, 01:25:24 PM »
you can roll from IRA to 401k?


Yes, if your 401(k) plan allows it -- some do not.
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Gin1984

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Re: Only 1k in trad IRA
« Reply #9 on: January 22, 2015, 01:25:30 PM »
you can roll from IRA to 401k?
Yes.  Just like you can roll a 401k into 401k. 

dandarc

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Re: Only 1k in trad IRA
« Reply #10 on: January 22, 2015, 01:26:31 PM »
yes i max 401ks & max our IRAs

i'm interested in knowing more about what Seattle said.  is that all true?
If you want to do a Backdoor Roth IRA down the road, having existing traditional IRA complicates that.  If you have a 401K plan available though, before you do your backdoor roth, you could Rollover your traditional IRA balances into the 401K, then make the traditional IRA contribution, and finally convert to Roth (this is how you do a backdoor roth IRA).

You could also just convert the whole T.IRA if it isn't so large that that would be cost prohibitive.

When you convert to Roth, and you have both tax-deductible contributions and non-deductible contributions in that IRA, the conversion amount is pro-rated.  So if you had an existing tIRA 100K balance, and wanted to put 2K into a Roth via the back door method (because your income is high enough that you're not allowed to make regular contributions), you'd find that nearly all of your 2K conversion is taxable.

All of this is not to be confused with the Mega Backdoor Roth IRA which is another thing entirely.

boarder42

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Re: Only 1k in trad IRA
« Reply #11 on: January 22, 2015, 01:36:09 PM »
awesome thanks for that dandarc
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boarder42

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Re: Only 1k in trad IRA
« Reply #12 on: January 22, 2015, 01:37:36 PM »
so is there some IRA provider out there that would not charge me a fee for putting money in and instantly rolling to a 401k?

i found out my work does allow ira to 401k rollovers.  So theoretically if i had to backdoor in the future i could do this rollover then.  vs doing it annually.
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Gin1984

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Re: Only 1k in trad IRA
« Reply #13 on: January 22, 2015, 02:11:49 PM »
so is there some IRA provider out there that would not charge me a fee for putting money in and instantly rolling to a 401k?

i found out my work does allow ira to 401k rollovers.  So theoretically if i had to backdoor in the future i could do this rollover then.  vs doing it annually.
Fidelity did not charge me a thing for opening an account and adding cash.  Nor did they when I transferred to Vanguard.  Granted, I did not transfer it right away but I doubt they would.