You have it essentially right, you can put $5,500 each into a traditional IRA, then roll that to a Roth IRA the next day.
That will tax shelter 1 month of your surplus.
He's also maxing out his 401-K. Did you check through his work to see if he has the option of putting even more than the max in? Some workplaces you can put in more after tax. It will be like a non-deductible IRA. The good thing about this is once a year (for some employers) you can roll that money over into a Roth. That will shelter some more of your money.
Do you have access to an HSA? Some money can be sheltered there.
Do you have access to a 401-K or something similar? If so put as much as you can in there.
After you've done all of that then you'll just be left with investing without the tax shelter in a taxable account. Pile it in there, you're in a great place to do that!
Thank you!
No I do not have a 401k..I stay at home with our kids so I'm unemployed. I thought I read something you can't contribute more than your income so since I do not have my own income can 5500 still be contributed for me and can they be in the same IRA?
I'll have him check about the option of contributing more than the max. I know each year we get a check from the 401k because the amount we contribute is higher than the average of all contributing employees or something? I'm not sure on the details..up until just recently we've just been blindly following along. His employer uses John Hancock for 401k which it seems like their fees are a lot higher than Vanguard..does that make sense to contribute extra if we have that option?
Also is it smart or even possible to move the money in his 401k to a vanguard account? I keep seeing on Vanguard's website about rolling over your 401k and I didn't know if that was possible if you are still with your employer.
I do think we have the option of a HSA so I'll have him ask about that as well. Does an HSA earn interest at all?
Thanks again! I really appreciate it!
To elaborate further, if one spouse has income, both can contribute to an IRA. The I in IRA stands for Individual, so you would each have a separate one. If you haven't been putting money in for both of you, you can still contribute for 2014 anytime before April 15th, so get on that asap!
Your DH is a highly compensated employee (HCE), which means that he is limited by some formula based on what all of the lower paid employees contribute to the 401-K.
Sorry to hear about the high fees in his 401-K. My DH's 401-K is also a high fee plan, but we contribute anyways because eventually when he switches jobs we'll be able to roll it over to a low fee IRA.
Since they've been sending his excess contributions back, then they probably don't have the after tax option. You'll just have to do the best you can with taxable investing. (Of course you should ask HR anyways, and while you're at it you should ask them to improve the plan to one with lower fees!)
An HSA is generally an interest bearing account. However all of the ones I have seen also have the option of investing the money. I did not because the money was there for medical expenses, but with your income I'd do my best to invest all of the HSA money in as low a fee fund as possible and pay for medical expenses out of pocket. **Bonus - keep all of your receipts and in future years you can withdraw money from the HSA tax free for all of your medical expenses. For example, say in 2015 you have a kid with a broken leg and it costs you $500 out of pocket and you pay from your checking account. You are allowed to take that $500 out of the HSA at *any* time in the future, tax free! So you retire in 2030, as long as you have the receipt, you can take out that $500 then.