Author Topic: Contribute to IRA even with post-tax money?  (Read 3016 times)

mustachianism_is_aredpill

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Contribute to IRA even with post-tax money?
« on: January 22, 2014, 10:28:31 PM »
Because of my circumstances, my contributions to a traditional IRA are not pre-tax.

I'm already maxing out my 401k.

1) Does it still make sense for me to contribute to an IRA, even with post-tax money?
2) Can I (and does it make sense to) also contribute to an IRA for my spouse who is currently not employed?
3) f I am contributing post-tax money anyway, does a Roth IRA make more sense than a traditional IRA? Or should I (and can I) do both?
« Last Edit: January 22, 2014, 10:30:35 PM by mustachianism_is_aredpill »

dragoncar

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Re: Contribute to IRA even with post-tax money?
« Reply #1 on: January 22, 2014, 10:39:47 PM »
Just do the Roth if it's post-tax.  Backdoor conversion if needed.

mustachianism_is_aredpill

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Re: Contribute to IRA even with post-tax money?
« Reply #2 on: January 22, 2014, 10:45:18 PM »
Thanks dragoncar. Can I also contribute to a Roth IRA for my spouse?

dragoncar

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Re: Contribute to IRA even with post-tax money?
« Reply #3 on: January 22, 2014, 11:01:11 PM »
It looks like you might be able to fund a spousal IRA, but I literally know nothing about it besides this google result (I'm not married so wasn't sure):

http://www.quickanddirtytips.com/money-finance/retirement/ira-contribution-rules-when-you-have-no-income

shuffler

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Re: Contribute to IRA even with post-tax money?
« Reply #4 on: January 22, 2014, 11:42:09 PM »
Backdoor Roth IRA:  http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Note that the contributions are *to* a traditional IRA, which you then *rollover* to a Roth IRA.
So you'll need to open a traditional IRA as well.  If you already have a traditional IRA, then you'll need to do some careful reading about the pro-rata rules for rollovers.

Yes, your wife can also contribute to an IRA (via backdoor if desired) using your joint income.

I do backdoor Roths for both my wife and myself.

seattlecyclone

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Re: Contribute to IRA even with post-tax money?
« Reply #5 on: January 23, 2014, 01:54:34 AM »
Backdoor Roth IRA:  http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Note that the contributions are *to* a traditional IRA, which you then *rollover* to a Roth IRA.
So you'll need to open a traditional IRA as well.  If you already have a traditional IRA, then you'll need to do some careful reading about the pro-rata rules for rollovers.

Yes, your wife can also contribute to an IRA (via backdoor if desired) using your joint income.

I do backdoor Roths for both my wife and myself.

Do be aware of the fact that if you're covered by a retirement plan (like a 401(k)) at work, there's a range of incomes where it's possible to be above the income limit to deduct traditional IRA contributions and below the income limit to make Roth IRA contributions directly. Don't mess with the backdoor contributions unless you're above both limits! If your income is low enough, the direct Roth contributions are easier and there's no worry about pro-rata rollover requirements.

Nothlit

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Re: Contribute to IRA even with post-tax money?
« Reply #6 on: January 23, 2014, 06:58:30 AM »
Backdoor Roth IRA:  http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

The only reason to do a backdoor Roth IRA is if you're over the income limit to contribute to a Roth IRA directly. The OP doesn't say whether that's the case for him (only that he's over the limit for a traditional deductible IRA).

Edit: Oops, I see the post immediately before mine points out the same thing. Guess I ought to read more carefully before replying. :)

shuffler

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Re: Contribute to IRA even with post-tax money?
« Reply #7 on: January 23, 2014, 10:54:02 AM »
Do be aware of the fact that if you're covered by a retirement plan (like a 401(k)) at work, there's a range of incomes where it's possible to be above the income limit to deduct traditional IRA contributions and below the income limit to make Roth IRA contributions directly.
Good point, thanks for the correction.  I shouldn't have assumed that asking about 'after-tax' doesn't necessarily mean they're beyond the phase-out.

For the record:  http://www.irs.gov/uac/2013-Pension-Plan-Limitations
Quote
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.

The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

... the difference in the ranges for a person covered by a retirment plan is larger than I had remembered, so it is an important point.