Roth IRA max salary

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indexonlyplease
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Roth IRA max salary

Post by indexonlyplease » Sat Aug 11, 2018 10:10 am

After almost 2 years of retirement I am going back to work.

To be able to still max out the Roth IRA each year what choice is better. My wife max out her taxed deferred acount 24K so this gets us below the limit to invest in the Roth each year. Now my job will get us over the salary limit. I believe these are my 2 options

1) use the backdoor Roth each year
2) use the 401k to get below the limit (not sure if 401k is any good)

The money form the job will be extra fun money not investing money while I am there. I would like to still invest our 2 Roth IRA.

Just though of this. We already maxed out the Roth IRA's for the year in January. If I go over the salary limit what will happen?

Married filling jointly is 198k for 2018.

Flyer24
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Re: Roth IRA max salary

Post by Flyer24 » Sat Aug 11, 2018 10:47 am

If you are over the income limit, there is 6% penalty to keep the contributions in the account. The penalty repeats every year until it is removed.

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FiveK
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Re: Roth IRA max salary

Post by FiveK » Sat Aug 11, 2018 10:50 am

Whether a 401k is beneficial itself depends on the tax rate at which you save now, vs. the tax rate you will pay when withdrawing.

If you do exceed the Roth IRA contribution limit, and have no pre-tax traditional IRA balance, you could recharacterize the 2018 Roth contribution to traditional and then do a backdoor Roth.

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whodidntante
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Re: Roth IRA max salary

Post by whodidntante » Sat Aug 11, 2018 10:54 am

Flyer24 answered your question. My suggestion is that if you are flirting with the Roth income limits, do a backdoor Roth. Also since your marginal tax rate is not low, you probably want to prioritize a pre-tax 401k and an HSA over a Roth IRA, assuming you can't max all three. I spent a day doing Monte Carlo simulations of lifelong accumulation and drawdown, and pre-tax investing combined with investing the current year tax savings ended up being better for me in terms of spending power in retirement, and it wasn't even close.

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Earl Lemongrab
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Re: Roth IRA max salary

Post by Earl Lemongrab » Sat Aug 11, 2018 4:05 pm

How long do you plan to work? If not long (and coming out of retirement I wouldn't think long) it doesn't matter much what the 401(k) costs are.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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UpsetRaptor
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Re: Roth IRA max salary

Post by UpsetRaptor » Sat Aug 11, 2018 4:15 pm

While other options are available, the simplest solution would be to use the 401k to get below the limit, this year and moving forward. That's also probably what you want to do anyways, not sure why you'd consider passing on 401k space.

indexonlyplease
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Re: Roth IRA max salary

Post by indexonlyplease » Mon Aug 13, 2018 6:42 am

Thanks for all the comments. Looks like I will use the 401k to get below the limits for this year. And then next year I will use the 401k and the Roth to max out both.

I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.

Thank You

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Earl Lemongrab
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Re: Roth IRA max salary

Post by Earl Lemongrab » Mon Aug 13, 2018 10:55 am

indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

1CEBITN
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Re: Roth IRA max salary

Post by 1CEBITN » Mon Aug 13, 2018 11:09 am

If your 401k has the option and the investment choices are decent you could do Roth 401k in your new job and then you don't have to worry about the income limits. When you're tired of working just roll it into the Roth IRA.

indexonlyplease
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Re: Roth IRA max salary

Post by indexonlyplease » Tue Aug 14, 2018 7:29 am

Earl Lemongrab wrote:
Mon Aug 13, 2018 10:55 am
indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
Good point. I was trying to wonder if it would be better to pay the capital gains tax now and just roll into Roth IRA. I have only owned the fund for 1 year in taxed account. I will always be in the 22% tax bracket or even higher working or in retirement. Pension keeps me there. I have enough in the fund to max out 2 Roths for the next 8 years (around that).

I don't have any other funds in taxable to off set possible loses.

What do you think?

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UpsetRaptor
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Re: Roth IRA max salary

Post by UpsetRaptor » Tue Aug 14, 2018 11:26 am

If you've only owned the Roth for 1 year and you'll always be in a 22%+ tax bracket, then yes, it may very well make sense to sell-taxable to fully fund Roth (and 401k). I've sold taxable funds to max out tax-advantaged space before.

This is assuming you do not have enough cash flow to fully fund both 401k and Roth through just cash flow, without having to incur cap gains by selling taxable. If you can cash flow maxing out the tax-advantaged space, that'd be the best option.

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Earl Lemongrab
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Re: Roth IRA max salary

Post by Earl Lemongrab » Tue Aug 14, 2018 12:58 pm

indexonlyplease wrote:
Tue Aug 14, 2018 7:29 am
Earl Lemongrab wrote:
Mon Aug 13, 2018 10:55 am
indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
Good point. I was trying to wonder if it would be better to pay the capital gains tax now and just roll into Roth IRA. I have only owned the fund for 1 year in taxed account. I will always be in the 22% tax bracket or even higher working or in retirement. Pension keeps me there. I have enough in the fund to max out 2 Roths for the next 8 years (around that).
You keep saying "roll". A rollover is a specific thing, moving money or assets from one tax-advantaged account to another. A taxable account can't be the source for a rollover. The money from one can be used a source for contributions to an IRA, but the usual yearly limits apply. It's generally not a great idea to incur taxes to make that $5500/$6500 contribution unless you can't fund it out of cash flow.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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grabiner
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Re: Roth IRA max salary

Post by grabiner » Tue Aug 14, 2018 8:53 pm

Earl Lemongrab wrote:
Mon Aug 13, 2018 10:55 am
indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
It is a good idea to sell for a capital gain in order to fund a Roth IRA that you wouldn't be able to fund otherwise. You will pay tax on the capital gain at some point, and by moving the money into a Roth IRA, you ensure that all future dividends and capital gains are tax-free.
Wiki David Grabiner

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Earl Lemongrab
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Re: Roth IRA max salary

Post by Earl Lemongrab » Tue Aug 14, 2018 11:50 pm

grabiner wrote:
Tue Aug 14, 2018 8:53 pm
Earl Lemongrab wrote:
Mon Aug 13, 2018 10:55 am
indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
It is a good idea to sell for a capital gain in order to fund a Roth IRA that you wouldn't be able to fund otherwise. You will pay tax on the capital gain at some point, and by moving the money into a Roth IRA, you ensure that all future dividends and capital gains are tax-free.
I think you'd be better off finding a way to fund from cash. It's not like we're talking 20-30k here.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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grabiner
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Re: Roth IRA max salary

Post by grabiner » Wed Aug 15, 2018 8:16 am

Earl Lemongrab wrote:
Tue Aug 14, 2018 11:50 pm
grabiner wrote:
Tue Aug 14, 2018 8:53 pm
Earl Lemongrab wrote:
Mon Aug 13, 2018 10:55 am
indexonlyplease wrote:
Mon Aug 13, 2018 6:42 am
I have money in a taxed Vanguard account I invested last year. My goal is to roll this money into the 2 Roths we have each year.
This is a confusing statement. You can't roll a taxable account into an IRA. If you mean that you plan to sell the assets to fund the Roths, that's probably not a great idea unless you can do it without capital gains tax.
It is a good idea to sell for a capital gain in order to fund a Roth IRA that you wouldn't be able to fund otherwise. You will pay tax on the capital gain at some point, and by moving the money into a Roth IRA, you ensure that all future dividends and capital gains are tax-free.
I think you'd be better off finding a way to fund from cash. It's not like we're talking 20-30k here.
I agree with this. If you have the cash flow to max out your retirement accounts (including stock dividends, and anything you can sell in the taxable account without a gain), this is better than selling stock for a capital gain. But if you don't have the cash flow, it is worth selling enough stock to max out the retirement accounts, in order to move more savings into tax-deferred.
Wiki David Grabiner

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