The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: SimpleLifer on June 09, 2019, 11:57:01 AM
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I'm maxing out all tax-deferred options like 401k, HSA, so I'm not eligible for pre-tax contribution to IRA.
Starting this year, I'm putting $6K in my IRA from my taxable investment account. My reasoning is, I'd like to rebalance portfolio without incurring CG, so I'd be better off getting funds out of taxable account and into IRA.
But now I'm wondering...
Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
TIA!
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Absolutely put that money that's already been taxed into a Roth for as long as you meet the income limits.
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I'm maxing out all tax-deferred options like 401k, HSA, so I'm not eligible for pre-tax contribution to IRA.
You may be above the IRA Deduction Limit (https://www.irs.gov/retirement-plans/ira-deduction-limits), but not because you have maxed out all other tax-deferred options.
But yes, assuming your investments increase in value, a Roth IRA will outperform (at worst, equal) a taxable account.
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Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
Not sure I understand the reasoning here. Most contributions to traditional IRA's are initially made with post-tax money. You then get money back when you file taxes and report the tIRA contribution.
IRA over taxable, definitely. tIRA vs Roth would depend on your marginal tax rate, total income and eligibility, and expected tax rate in retirement.
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Thank you for your helpful responses. I will look into getting a Roth IRA...I don't think I will qualify, but I'll verify that.
Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
Not sure I understand the reasoning here. Most contributions to traditional IRA's are initially made with post-tax money. You then get money back when you file taxes and report the tIRA contribution.
IRA over taxable, definitely. tIRA vs Roth would depend on your marginal tax rate, total income and eligibility, and expected tax rate in retirement.
I should have been more specific about this point @MonkeyJenga...my IRA is a Rollover IRA, so it's currently funded from 401k's from previous employers.
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Thank you for your helpful responses. I will look into getting a Roth IRA...I don't think I will qualify, but I'll verify that.
Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
Not sure I understand the reasoning here. Most contributions to traditional IRA's are initially made with post-tax money. You then get money back when you file taxes and report the tIRA contribution.
IRA over taxable, definitely. tIRA vs Roth would depend on your marginal tax rate, total income and eligibility, and expected tax rate in retirement.
I should have been more specific about this point @MonkeyJenga...my IRA is a Rollover IRA, so it's currently funded from 401k's from previous employers.
Okay, so your current IRA was funded with pre-tax rollover money. You can open a new tIRA for these contributions, so I still don't see the logic for a Roth. It may make sense based on other factors, but the tax result of a tIRA is the same whether it comes from a taxable account or a pre-tax 401k contribution.
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It greatly depends on your marginal tax rate. If, even after all of your current contributions, you are still in the 22% or higher bracket, a traditional IRA is probably the best bet (if you are eligible). If you are in the 12% or below, it really doesn't matter that much. Personally, I put 6k in a Roth every year. It serves both as my emergency fund and as a hedge against tax bracket changes.
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Thank you for your helpful responses. I will look into getting a Roth IRA...I don't think I will qualify, but I'll verify that.
Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
Not sure I understand the reasoning here. Most contributions to traditional IRA's are initially made with post-tax money. You then get money back when you file taxes and report the tIRA contribution.
IRA over taxable, definitely. tIRA vs Roth would depend on your marginal tax rate, total income and eligibility, and expected tax rate in retirement.
I should have been more specific about this point @MonkeyJenga...my IRA is a Rollover IRA, so it's currently funded from 401k's from previous employers.
Okay, so your current IRA was funded with pre-tax rollover money. You can open a new tIRA for these contributions, so I still don't see the logic for a Roth. It may make sense based on other factors, but the tax result of a tIRA is the same whether it comes from a taxable account or a pre-tax 401k contribution.
Above a certain income level your traditional IRA contributions won't be deductible.
There's a higher income level for making Roth IRA contributions. Do this if your income is low enough.
If you make too much for Roth contributions, there's the "backdoor Roth" (look elsewhere for more information about how this works). A complicating factor is that you have a pre-tax rollover IRA. You will need to get rid of your pre-tax balance (by rolling it into your 401(k), for example) in order to do the backdoor Roth.
In general, post-tax contributions to a traditional IRA aren't the greatest option unless you have a way to convert them to Roth shortly thereafter.
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Thank you for your helpful responses. I will look into getting a Roth IRA...I don't think I will qualify, but I'll verify that.
Should I be putting that $6K/year in a Roth IRA instead, since it's coming from my taxable investment account (I've already paid tax on that $6K).
Not sure I understand the reasoning here. Most contributions to traditional IRA's are initially made with post-tax money. You then get money back when you file taxes and report the tIRA contribution.
IRA over taxable, definitely. tIRA vs Roth would depend on your marginal tax rate, total income and eligibility, and expected tax rate in retirement.
I should have been more specific about this point @MonkeyJenga...my IRA is a Rollover IRA, so it's currently funded from 401k's from previous employers.
Okay, so your current IRA was funded with pre-tax rollover money. You can open a new tIRA for these contributions, so I still don't see the logic for a Roth. It may make sense based on other factors, but the tax result of a tIRA is the same whether it comes from a taxable account or a pre-tax 401k contribution.
Above a certain income level your traditional IRA contributions won't be deductible.
There's a higher income level for making Roth IRA contributions. Do this if your income is low enough.
If you make too much for Roth contributions, there's the "backdoor Roth" (look elsewhere for more information about how this works). A complicating factor is that you have a pre-tax rollover IRA. You will need to get rid of your pre-tax balance (by rolling it into your 401(k), for example) in order to do the backdoor Roth.
In general, post-tax contributions to a traditional IRA aren't the greatest option unless you have a way to convert them to Roth shortly thereafter.
Agreed. To clarify, I was not recommending a non-deductible contribution to a tIRA. If SimpleLifer truly does not qualify for deductible tIRA contributions, but does meet the requirements for Roth, then Roth is the way to go.