Author Topic: IRA Contribution?  (Read 1096 times)

dblaace

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IRA Contribution?
« on: February 07, 2021, 08:43:42 AM »
I am planning on retiring by the end of the year.

I am trying to decide whether to make my IRA contribution this year or not. I will be able to make withdrawals and any tax savings look to be negligible if I deposit it this year and withdraw it next year so it seems pointless to do it. 401k will be maxed.

Am I missing something.

achvfi

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Re: IRA Contribution?
« Reply #1 on: February 07, 2021, 09:19:31 AM »
Yeah either you are missing something or we dont have enough information.

Anyway, yeah it makes sense to contribute. If tax savings are minimal contribute to Roth otherwise traditional IRA. You have until next april 15 to make that decision.

There are several advantages for AGI related benefits with IRA contributions as well.

Kayad

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Re: IRA Contribution?
« Reply #2 on: February 08, 2021, 07:10:15 AM »
Yeah, you have to factor in tax savings this year.  If your income in your last year of working is > your expected income in retirement, you should contribute.

If your tax bracket in your last year of working is already low/will be higher in retirement, contribute to a Roth.

You seem to only be thinking of the tax free growth of your contributions.  Perhaps not as much benefit there if you are nearly in drawdown stage, but you arenít going to exhaust your IRA in retirement year 1 (right?). 


dblaace

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Re: IRA Contribution?
« Reply #3 on: February 08, 2021, 01:55:36 PM »
Yeah, you have to factor in tax savings this year.  If your income in your last year of working is > your expected income in retirement, you should contribute.

If your tax bracket in your last year of working is already low/will be higher in retirement, contribute to a Roth.

You seem to only be thinking of the tax free growth of your contributions.  Perhaps not as much benefit there if you are nearly in drawdown stage, but you arenít going to exhaust your IRA in retirement year 1 (right?).

I was considering tax this year, but $7k will not change the bracket I'm in. Theoretically save $700 this year, pay $700 next year. I could just put it in a taxable account as a hedge against SOR risk. 

I hadn't considered the AGI difference though.

terran

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Re: IRA Contribution?
« Reply #4 on: February 08, 2021, 03:44:30 PM »
Assuming you have taxable that you'll be living off of for the next few years, and enough in taxable and Roth contributions to get a Roth conversion ladder going (or you'll be 59.5 years old soon enough not to need one) then I would contribute to either a Roth or traditional IRA depending on current and expected future marginal tax brackets. Not contributing to an IRA when you have a taxable account is effectively the same as contributing to taxable instead of an IRA, which is counter to the recommended investment order, so unless you have a special situation for some reason that makes investing in taxable preferable to an IRA then I would go with the IRA.

dblaace

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Re: IRA Contribution?
« Reply #5 on: February 08, 2021, 04:58:00 PM »
Assuming you have taxable that you'll be living off of for the next few years, and enough in taxable and Roth contributions to get a Roth conversion ladder going (or you'll be 59.5 years old soon enough not to need one) then I would contribute to either a Roth or traditional IRA depending on current and expected future marginal tax brackets. Not contributing to an IRA when you have a taxable account is effectively the same as contributing to taxable instead of an IRA, which is counter to the recommended investment order, so unless you have a special situation for some reason that makes investing in taxable preferable to an IRA then I would go with the IRA.
I'll be 59.5 in about 30 days. Starting withdrawals in 2022. Same bracket before and after.

terran

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Re: IRA Contribution?
« Reply #6 on: February 08, 2021, 08:15:58 PM »
If you're pretty confident about the same bracket before and after (including state taxes) then I'd probably put it in Roth. Money in Roth is pretty much always better than taxable (I can't think of a reason why it wouldn't be, but there's usually some edge case) since the gains are tax free.