Author Topic: New request for help, same old story type  (Read 1956 times)

BMEPhDinCO

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New request for help, same old story type
« on: January 14, 2016, 10:48:18 AM »
Alright, I know this has been done before, but please help anyway...

DH and I finally both have (semi) real jobs... base salary right now hit around $93k combine.  But DH may make another $13k over the summer, not sure yet.

We have enough flexibility in the budget to put $11k towards IRA or RothIRA and around $20k into a 401k. My question is how to do it.  We already have rothIRAs (with USAA, target funds), and these have been maxed every year for the last 5 years.  I also have a rollover IRA from an old job that's currently needing help (separate issue).

My question is this: Would a Roth or a regular IRA be better?

MAGI looks like it will be the maximum of $86k.  My thought is that if we do the IRA, we could then let it reduce our taxes and (since I'm rounding numbers a bit high here), we'd be eligible for the lower tax bracket.

But if we do a Roth IRA, we would be in a higher bracket now, but would have no taxes on withdrawal... and we will probably just keep going up in taxes.

Also, there is no match for the 401k (neither of us are on long term contracts, 1 year for me, 2 for him).

So any help here? IRA and get into the 15% tax bracket now? But pay more in taxes later...  Or RothIRA now and be in the 25% tax bracket?  But of course, no taxes later...  Also, our state is flat tax (CO).  Finally, there is a chance that DH might still make a little bit in SE income that could still bump us to the 25% bracket, but only on $1-2k.  There is no investment income or capital dividends or anything in consideration.

tl;dr : Roth or IRA?

GGNoob

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Re: New request for help, same old story type
« Reply #1 on: January 14, 2016, 11:28:48 AM »
Contributions to our 401(k)s and my 457 actually bring my wife and I into the 15% tax bracket. But I still contribute to a tIRA to take the 15% tax reduction because I believe I can do pretty good with keeping our taxes incredibly low in retirement.

Take a look at this article: http://www.gocurrycracker.com/go-curry-cracker-2014-taxes/

Another thing, you may want to consider moving your IRAs to Vanguard. USAA Target Retirement Date Funds have an expense ratio of nearly 1%! Vanguard on the other hand is around 0.17%. This will save you a ton over the long run.

With This Herring

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Re: New request for help, same old story type
« Reply #2 on: January 14, 2016, 11:50:05 AM »
I second GGNoob on both points.  Go traditional IRA, and get out of USAA to go to Vanguard.  If you're mustachian, you are 'staching like crazy and will be able to roll trad -> Roth in retirement at much lower rates (and possibly tax free).

BMEPhDinCO

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Re: New request for help, same old story type
« Reply #3 on: January 14, 2016, 12:15:05 PM »
I'd forgotten about GoCurry, thanks for the reminder, such an awesome way to do it!

And thanks for the push about Vanguard, while I was planning on putting the new IRA with them, I suppose it would be a good time to also move the Roth over there.

Any other thoughts? Otherwise looks like the 403(b) (ie, 401k for academics) plus an IRA with Vanguard will be our answer.

With This Herring

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Re: New request for help, same old story type
« Reply #4 on: January 14, 2016, 02:15:01 PM »
Once you've maxed out your tax-advantaged accounts, don't forget that you can have a normal brokerage account with Vanguard as well for any spare savings.  :)

MDM

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Re: New request for help, same old story type
« Reply #5 on: January 14, 2016, 07:18:41 PM »
tl;dr : Roth or IRA?
Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see      
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/   
   if you want even more details on that topic).  See also   
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845   
   and other posts in that thread about exceptions to the rule.   

Also try www.i-orp.com which will predict your future tax brackets, given all the inputs and assumptions it uses.