Author Topic: Newbie: Best Roth IRA options and next step...links appreciated.  (Read 2024 times)

alewpanda

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So, I've been around the forums a bit.  Been working on knocking out some consumer debt super quickly and learning to trim other expenses drastically.  Soon the last bit of consumer debt will be gone, and outside of keeping a bit in an accessible account for emergencies, I am hoping to open up a Roth IRA (or maybe two).

Husband's job offers a 401K, and he contributes 8% (first 4% is matched).  Husband isn't necessarily on board with FIRE, but we do feel behind in our investments and retirement in general, even if we don't retire early.   I work for a non profit and do not put in a full 40 hours, so I am not eligible for a retirement plan through my job.  My income (within the next 6 months) will be entirely "extra" (aka, not needed to cover even liberal spending months).  With that, we should be able to max out 2 Roth IRAs (limit is 5500 each I believe) and then some.  I make between 16k and 18k a year.  We have almost no tax deductions outside of the standard, so anything that will shield us from that would be nice too.


I will admit to being extremely math challenged.  I can do general budgeting and I understand compounding interest, but the fees/company options/overall returns on various accounts has me incredibly overwhelmed, and my husband (much more technically minded) hasn't been inspired by my efforts yet to do any research. 


So -- what's your favorite Roth IRA option?  If my husband has a 401k, we could still open a second IRA in his name, correct?  With a goal in mind, we can save a bit and buy into a higher threshold investment account if the benefits are better.  I just need direction and some specific links to look into.  My head hurts....

Bonus question: what should I do with the rest of my income beyond the two Roths?  If we can keep our expenses low (barring major medical or vehicle replacement) that additional 5-7000 needs to go somewhere so we don't spend it.  But I'm not sure what the best option is beyond the Roths.  Should we max out his 401k?

seattlecyclone

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Re: Newbie: Best Roth IRA options and next step...links appreciated.
« Reply #1 on: January 14, 2017, 09:27:46 AM »
If you're interested in tax deductions, look into a traditional IRA instead of Roth. Only traditional retirement accounts bring your current-year income down. You should be able to make that contribution since you're not eligible for your 401(k) at work; for your husband it will depend on your household income whether this is an option or not. He could also increase his 401(k) contributions for some more tax savings this year.

Also since it's the beginning of the year, you have until mid-April to make IRA contributions for 2016, so maybe focus on that first before increasing 401(k) contributions. You'll then have the rest of the year to max out that 401(k), and until April 2018 to max out your 2017 IRAs.

As to which company you should go with, Vanguard is good. They invented the index fund, they are owned by their investors, and they operate their funds at cost. Their interests are aligned with yours.

SeattleCPA

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Re: Newbie: Best Roth IRA options and next step...links appreciated.
« Reply #2 on: January 14, 2017, 09:44:58 AM »
If you're interested in tax deductions, look into a traditional IRA instead of Roth. Only traditional retirement accounts bring your current-year income down. You should be able to make that contribution since you're not eligible for your 401(k) at work; for your husband it will depend on your household income whether this is an option or not. He could also increase his 401(k) contributions for some more tax savings this year.

Also since it's the beginning of the year, you have until mid-April to make IRA contributions for 2016, so maybe focus on that first before increasing 401(k) contributions. You'll then have the rest of the year to max out that 401(k), and until April 2018 to max out your 2017 IRAs.

As to which company you should go with, Vanguard is good. They invented the index fund, they are owned by their investors, and they operate their funds at cost. Their interests are aligned with yours.

Agree with seattlecyclone's wise advice and remarks. Almost surely you should first fill up your husband's 401(k) and your IRA spaces...

You need to have a lot of money coming out of your IRAs and 401(k)s before you're paying much tax on that money. And the income taxes you guys pay now on your last dollars of earned income is probably at a higher rate.

Note: We've mocked up tax returns where someone with pretty decent social security benefits and a $650K balance in the taxable retirement accounts pays zero income taxes.

Davids

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Re: Newbie: Best Roth IRA options and next step...links appreciated.
« Reply #3 on: January 14, 2017, 01:06:57 PM »
Just put it in Vanguard and pick a retirement year fund based on when you expect to retire. The fee is still low and it does all the work for you. Simple and effective.

teen persuasion

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Re: Newbie: Best Roth IRA options and next step...links appreciated.
« Reply #4 on: January 14, 2017, 04:56:55 PM »
Also agree with SeattleCyclone.

Need to know your household income to determine whether your DH is eligible to deduct traditional IRA contributions.

I don't have access to a 401k, either, so DH essentially contributes for both of us to his.  I make less than half of what he does, but he has all the benefits, so my take home is greater while his is ridiculously small.  It all goes in the same pot in the end.

So have your DH increase his 401k contributions.  Check your household income to see if he qualifies to deduct traditional IRA contributions.  Contribute to a traditional IRA for yourself (if you want to reduce taxable income).  Check to see if you are eligible for the Retirement Saver's credit (lowered AGI from increased 401k contributions can help if you are close to limits).  Do you have an HDHP?  Contribute to an HSA (also lowers AGI).

alewpanda

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Re: Newbie: Best Roth IRA options and next step...links appreciated.
« Reply #5 on: January 15, 2017, 07:35:36 PM »
Also agree with SeattleCyclone.

Need to know your household income to determine whether your DH is eligible to deduct traditional IRA contributions.

I don't have access to a 401k, either, so DH essentially contributes for both of us to his.  I make less than half of what he does, but he has all the benefits, so my take home is greater while his is ridiculously small.  It all goes in the same pot in the end.

So have your DH increase his 401k contributions.  Check your household income to see if he qualifies to deduct traditional IRA contributions.  Contribute to a traditional IRA for yourself (if you want to reduce taxable income).  Check to see if you are eligible for the Retirement Saver's credit (lowered AGI from increased 401k contributions can help if you are close to limits).  Do you have an HDHP?  Contribute to an HSA (also lowers AGI).

Household income is around 75,000 or a little more.  Husband brings in much more income than I.  I looked into an HSA, but as far as I understand, you have to have an eligible insurance plan, which neither of ours are. 

I am not sure what an HDHP is, but I will look it up.  And I will also research the Retirement Savers credit.  Thank you!