For wife: TIRA vs Roth

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For wife: TIRA vs Roth

Postby floridanurse » Sat Dec 15, 2012 2:39 pm

Wife has income of 100k. Works for private family of substantial wealth.

No benefits at all.

Just opened a fidelity TRaditional IRA for $5k for her for 2012. Wondering if its best to keep as traditional or covert to Roth?

My income is btw 150-200k, I have a 401k I max and was going to open same thing for 5k and then covert to Roth this week.

Wanted some input on this. Do the backdoor Roth for both of us? Just her? Just me?

These funds are for long term planning. We are late 30s and have no intention of touching until we old
Any other info u need pls ask.ty.

Thoughts?
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Re: For wife: TIRA vs Roth

Postby tyler_cracker » Sat Dec 15, 2012 3:05 pm

My understanding is that you will pay taxes at your current marginal tax rate on money you move into a Roth. Looks like you're near the highest tax bracket possible. Unless you plan to be making as much or more in retirement, I think the basic principles say no, do not convert.

Why do you want a Roth anyway?
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Re: For wife: TIRA vs Roth

Postby retiredjg » Sat Dec 15, 2012 6:05 pm

floridanurse wrote:Thoughts?

It depends on what your choices are. Sometimes Roth is better, but it depends on what the other option is.

1) Deductible contributions to traditional IRA would be best because it would lower your taxes while in a high tax bracket. This is not a choice for you (too much income and covered by 401k). I don't think it is a choice for her, but you should check. The phase out is different for her since she is not covered by a plan at work

2) Roth IRA would be your next best choice, but I think (not positive) there is too much income for either of you to be eligible to make direct contributions.

3) That leaves three possible choices - note that all these choices deal with money that is going to be taxed anyway

    - non-deductible contributions to tIRA - poor choice in my opinion
    - taxable account - better choice because the earnings will be taxed at a lower rate than in an IRA
    - back door contribution to Roth IRA - probably the best choice because the earnings will not be taxed at all.

However for that last choice - it is only good if there are no other tIRA, SEP IRA, or SIMPLE IRAs to complicate the matter. And we don't know if you have or is she has any of these other IRAs.
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Re: For wife: TIRA vs Roth

Postby grabiner » Sun Dec 16, 2012 12:30 am

floridanurse wrote:Wife has income of 100k. Works for private family of substantial wealth.

No benefits at all.

Just opened a fidelity TRaditional IRA for $5k for her for 2012. Wondering if its best to keep as traditional or covert to Roth?

My income is btw 150-200k, I have a 401k I max and was going to open same thing for 5k and then covert to Roth this week.


With these numbers, your wife's Traditional IRA is non-deductible; you are covered by a retirement plan and your combined income is over the limit. Therefore, she should convert her Traditional IRA to a Roth, as the conversion won't cost you anything in taxes (unless she has another deductible IRA). Likewise, you should do a backdoor Roth IRA (unless you have another deductible IRA.)

While you are in a high tax bracket, you are opening Roth IRAs with money you would otherwise invest in a taxable account, and that is a good deal; as long as you have the money and can't get a tax deduction on it, you might as well get tax-free growth.
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Re: For wife: TIRA vs Roth

Postby Bob's not my name » Sun Dec 16, 2012 5:42 am

floridanurse, I agree with grabiner. For clarification, in your prior thread you stated your total gross income was $150,000 - $200,000, based on which I said your wife should be eligible for a deductible spousal TIRA, but I see here it's actually $250,000 - $300,000.
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