IRA for Variable Income?

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Deuces8855
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IRA for Variable Income?

Post by Deuces8855 » Wed Mar 25, 2020 9:01 pm

Hi, i know people have bigger topics were talking about with all the recent events going on in the world and market.

My brother is in Real Estate. He wants to open an IRA. He hasn't reached this, but in the future he could very easily go over the Roth income limits. Being a Realtor its obviously a year to year thing. Would a traditional IRA be a good alternate? (I'm aware of the tax implications of both). Thanks!

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David Jay
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Location: Michigan

Re: IRA for Variable Income?

Post by David Jay » Wed Mar 25, 2020 9:41 pm

If he does not have a traditional IRA with a pre-tax balance, he can do a “backdoor Roth” which allows him to contribute $6000 per year ($7000 if over age 50).

Link here: https://www.bogleheads.org/wiki/Backdoor_Roth
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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unclescrooge
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Re: IRA for Variable Income?

Post by unclescrooge » Wed Mar 25, 2020 9:57 pm

If self employed, sep or solo 401k might be better

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David Jay
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Re: IRA for Variable Income?

Post by David Jay » Thu Mar 26, 2020 8:27 am

unclescrooge wrote:
Wed Mar 25, 2020 9:57 pm
If self employed, sep or solo 401k might be better
^ This. I didn’t think about the likelihood that someone in Real Estate would be self-empployed.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

sjt
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Re: IRA for Variable Income?

Post by sjt » Thu Mar 26, 2020 8:30 am

You have until tax day of the following year to contribute, so maybe just wait until the final income number to contribute?
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

mhalley
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Re: IRA for Variable Income?

Post by mhalley » Thu Mar 26, 2020 2:29 pm

There are several options when your income is variable and close to the Roth limit.
1. Contribute to Roth, then recharacterize and do backdoor Roth if income goes over the limit. (More complicated than 2 and 3)
2. Wait till late in the year, or early in the next year, then contribute to Roth or do backdoor as needed. (This goes against getting money into the market ASAP).
3. Just do the backdoor Roth every year.
I like 3.

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