In 2014, I contributed $5500 to a Vanguard Roth IRA. A commenter on my journal recently suggested that a Traditional IRA might be a better choice, so I went back to look at things. Here's my situation, as far as I understand it:
My official salary is $75k (over Trad. IRA deduction limit), but since I started this job in June I only made ~$40k in 2014. This means that, for 2014 only, I could deduct Trad. IRA contributions.
Upside #1: If I deducted $5500 from my income it would save me ~$800 in taxes this year.
Upside #2: I could then invest that $800.
To recharacterize a year's worth of Roth IRA contributions to Traditional, I would need to open a brand new Trad. IRA account. I would need to do the math and move both the $5500 I put in and whatever those contributions have earned over the year. This money would then sit, by itself, in the Trad. IRA until some future year when I'm ER and can convert it back to Roth without heavy taxes.
Downside #1: I would have less than $6000 in this account, and I would never contribute to it again (since from 2015 onward I'll definitely do Roth). This means I would pay higher expense ratios on Vanguard's index funds - maybe $70/year more than I would if I added the same amount to my Roth, which already has enough in it to qualify for Admiral shares.
Downside #2: I'm pretty sure this would make this year's tax return significantly more complicated - 3 or so extra forms. I'm nervous enough about doing my own taxes as it is.
Help? I know everything will be fine if I leave it how it is right now, but the possibility of that $800 is tempting. Would jumping through all the necessary hoops be worth it? What am I overlooking?
