Author Topic: 401(k)/IRA Question  (Read 2378 times)

JackieTreehorn

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401(k)/IRA Question
« on: February 05, 2014, 12:15:49 PM »
Hi All,

Long time (about 6-months) reader but first time poster.  Thanks to everyone for all of the great information being shared.  I've learned a ton on this forum.

My situation is:
My wife and I are both currently employed.  My salary is about $96K, with about $10K bonus, my wife is employed with about $110 salary and $10K bonus.  I have access to a 401(k) which I currently (almost) max out.  I also did a back door Roth IRA contribution this year since, based on my understanding, our combined income of over $200K puts us above the income limits for Roth 401(k) contributions.  My wife does not currently have access to a 401(k), since she works for basically a start up with only 2 U.S. based employees.  Based on our income, I believe she is not eligible to contribute to either a deductible traditional IRA or a Roth IRA.  Also, she currently has both a Roth IRA and a traditional IRA (deductible) from before we were married and her old job (she rolled her old 401(k) into a trad. IRA).  From what I've read, this makes the back door IRA not particularly useful for her since having a non-deductible IRA sort of makes the backdoor Roth not a good option (see the caveat on the Bogleheads forum for what I'm referring to). 

Does anyone have any suggestions for what we can do to fund her retirement account(s) in a tax-efficient way?

I do apologize if this question has already been answered in a prior MMM post or forum, but I haven't seen anything that addresses this particular issue.  I have looked into Spousal IRA options but I believe this is really for a situation where only 1 person is working and the other either doesn't work or has a very low income which is not the case for us.

Thanks for taking the time.

foobar

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Re: 401(k)/IRA Question
« Reply #1 on: February 05, 2014, 12:48:42 PM »
You would have to do all the taxes to see if you can do the ROTH. My back of the envelope math gives you an mAGI of like 190k which means a partial roth.

Otherwise she is sort of stuck. You could do the nondeductible, traditional ira with the idea of doing a roth rollover (as you point out you need to move that deductible IRA back into a 401(k) for it to make sense) or lobby the company to add a benefit (401(ks) are pretty cheap if the company isn't doing any matching).

Hi All,

Long time (about 6-months) reader but first time poster.  Thanks to everyone for all of the great information being shared.  I've learned a ton on this forum.

My situation is:
My wife and I are both currently employed.  My salary is about $96K, with about $10K bonus, my wife is employed with about $110 salary and $10K bonus.  I have access to a 401(k) which I currently (almost) max out.  I also did a back door Roth IRA contribution this year since, based on my understanding, our combined income of over $200K puts us above the income limits for Roth 401(k) contributions.  My wife does not currently have access to a 401(k), since she works for basically a start up with only 2 U.S. based employees.  Based on our income, I believe she is not eligible to contribute to either a deductible traditional IRA or a Roth IRA.  Also, she currently has both a Roth IRA and a traditional IRA (deductible) from before we were married and her old job (she rolled her old 401(k) into a trad. IRA).  From what I've read, this makes the back door IRA not particularly useful for her since having a non-deductible IRA sort of makes the backdoor Roth not a good option (see the caveat on the Bogleheads forum for what I'm referring to). 

Does anyone have any suggestions for what we can do to fund her retirement account(s) in a tax-efficient way?

I do apologize if this question has already been answered in a prior MMM post or forum, but I haven't seen anything that addresses this particular issue.  I have looked into Spousal IRA options but I believe this is really for a situation where only 1 person is working and the other either doesn't work or has a very low income which is not the case for us.

Thanks for taking the time.

JackieTreehorn

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Re: 401(k)/IRA Question
« Reply #2 on: February 06, 2014, 06:51:33 PM »
Thanks for your thoughts foobar.  I will have to run the numbers when we do our taxes and see if she's eligible for a partial Roth. 

I agree, she should make every effort to get a 401(k) going for her company.  The response from her boss will most likely be "Great idea...Why don't you set that up?" and so I dunno...I've looked it into it a bit and it doesn't seem like a ton of work but it does involve drafting a plan document, etc.  Although perhaps it's possible to outsource most of the work to vanguard or fidelity or someone.

Anyhow, thanks for your help!

foobar

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Re: 401(k)/IRA Question
« Reply #3 on: February 06, 2014, 08:33:20 PM »
Drafting the plan docs is pretty  much fill in the blank from the forms provided. Assuming they use a payroll provider, that company would probably do it for a couple bucks more a month. Fidelity and Vanguard are both happy to do solo 401(ks) but I was told at a previous company that it is hard to get them to do <25 people companies. but that was close to a decade ago.

Thanks for your thoughts foobar.  I will have to run the numbers when we do our taxes and see if she's eligible for a partial Roth. 

I agree, she should make every effort to get a 401(k) going for her company.  The response from her boss will most likely be "Great idea...Why don't you set that up?" and so I dunno...I've looked it into it a bit and it doesn't seem like a ton of work but it does involve drafting a plan document, etc.  Although perhaps it's possible to outsource most of the work to vanguard or fidelity or someone.

Anyhow, thanks for your help!