Author Topic: Roth or Traditional IRA this year?  (Read 1867 times)

MEJG

  • Bristles
  • ***
  • Posts: 276
  • Location: Northeast US
Roth or Traditional IRA this year?
« on: June 09, 2015, 10:00:13 AM »
We should have $3-5,500 saved by the end of July or August to put into our IRAs for the year and I am trying to work through our best option taxes wise.  This is the first year we will probably be in the 25% bracket and the first year we can put into an IRA in a while, so please bear with me.

Basic information
I'm married, we filed jointly
Estimated income for 2015 (based on earnings thus far this year) $145- $180,000 - wide variation since we're both in commission jobs.
Mr. MEJG has a 401K at his job- he is maxing it out.  No other job based retirement accounts available, No HSA, No other pre-tax accounts available
We have two children, and qualify for the adoption tax credit for this tax year ($13,400 - NON refundable credit, can be rolled for 5 years)

2015
Roth IRA
income limits: $183-$193
tIRA
AGI >$98,000 can deduct entire amount
$98,000 < AGI < $118,000 partial deduction

With our current income, and current options for AGI reduction I don't see why we should contribute to traditional IRAs this year.  I currently hold a Roth, and a tIRA (Simple rolled over from previous job).  So contribute to mine and open a Roth for Mr. MEJG

Am I missing something?

Thanks :)

dandarc

  • Magnum Stache
  • ******
  • Posts: 3973
  • Age: 37
Re: Roth or Traditional IRA this year?
« Reply #1 on: June 09, 2015, 10:04:49 AM »
Keep in mind it is MAGI and not AGI, but get that money working for you today!

When you do your taxes in 2016, if it turns out some or all of it should have gone Roth but you put it in Traditional or vice-versa, you can recharacterize the contribution.  You have until October 15th if you file your taxes on time, though easier to do it before April 15th as you won't have to amend your return.

MEJG

  • Bristles
  • ***
  • Posts: 276
  • Location: Northeast US
Re: Roth or Traditional IRA this year?
« Reply #2 on: June 09, 2015, 10:07:43 AM »
I didn't know you could reccharacterize!  Do you happen to know if it is relatively easy to do with Vanguard?

We're waiting for $3,000 so we can open an IRA in Mr. MEJG's name, he doesn't have one.  Otherwise it would have already been working :)

dandarc

  • Magnum Stache
  • ******
  • Posts: 3973
  • Age: 37
Re: Roth or Traditional IRA this year?
« Reply #3 on: June 09, 2015, 10:15:41 AM »
I didn't know you could reccharacterize!  Do you happen to know if it is relatively easy to do with Vanguard?

We're waiting for $3,000 so we can open an IRA in Mr. MEJG's name, he doesn't have one.  Otherwise it would have already been working :)
Having done this this year for 2014 contributions with Vanguard, it is a breeze.  Call Vanguard, tell them what you want to do, electronically sign the forms the person on the phone tells you to and you're done in like 10 minutes or less.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10092
Re: Roth or Traditional IRA this year?
« Reply #4 on: June 09, 2015, 11:33:19 AM »
Estimated income for 2015 (based on earnings thus far this year) $145- $180,000 - wide variation since we're both in commission jobs.
Mr. MEJG has a 401K at his job- he is maxing it out.  No other job based retirement accounts available
tIRA
AGI >$98,000 can deduct entire amount
$98,000 < AGI < $118,000 partial deduction

With our current income, and current options for AGI reduction I don't see why we should contribute to traditional IRAs this year.
If I read this correctly, you have no 401k option at your workplace.  If true, then $145K-$18K=$127K is going to put you well above the deductible limit for a tIRA and your conclusion is sound.

We're waiting for $3,000 so we can open an IRA in Mr. MEJG's name, he doesn't have one.  Otherwise it would have already been working :)
You don't need to wait for $3K.  Take $1K and put it in, for example, VTTSX, and away you go.  You could always move the money later, but in addition to the lower minimum, VTTSX is a very defensible single fund for the whole account.