Best options for investing after standard retirement contributions

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BogBod
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Joined: Tue Jan 01, 2019 6:14 pm

Best options for investing after standard retirement contributions

Post by BogBod »

Wondering your thoughts for us. Wife and I are just over 50 years old. Am I correct about my understanding of limits we face, and can you provide recommendations for us?

Currently, wife has 403b, so she can max annual contributions at $26,000
She does not have 457 available (even though she works for a school district).

I have a SIMPLE IRA at my business, so $16,500 max annual employee contributions.

Our income exceeds that which would grant us tIRA tax deductions and Roth IRA options.
And I think I understand that we would have complications with a Roth backdoor conversion, since I have the SIMPLE IRA (and also a rollover tIRA).

If we have additional income to invest after the $26,000 + $16,500 = $42,500 annually, should we:

a) contribute to two tIRAs (wife and me) using after tax dollars and having no tax deduction (up to $14000 total)
b) just invest in taxable accounts
c) some other option, of which I am not currently aware

If it may influence any recommendation, our mortgage is paid off, and college is fully funded for college-age sons. Wife will have pension (~$2500/mo). Rental accessory apartment in our home generates $1260/mo income. Current $1.3M in investments (retirement/taxable) and cash.
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Raybo
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Re: Best options for investing after standard retirement contributions

Post by Raybo »

I would recommend investing in a taxable account. This money is directly available tax-free (except for taxes on gains) and gives you much flexibility. One key benefit of a taxable account is that you can use the money to time your IRA withdrawals and to delay SS until you are 70.

Funds the kick off capital gains and dividends may increase you income taxes. But, the flexibility of access outweighs this, in my view.

Another idea is to buy IBonds, which keep up with inflation and are tax-deferred. Note there is a limit on annual IBond purchases.
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tashnewbie
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Re: Best options for investing after standard retirement contributions

Post by tashnewbie »

Could your wife do a backdoor Roth conversion, without worrying about prorated taxes? You don't mention if she has a pretax IRA. If she can do the backdoor conversion without fuss, I think she should do that.
Topic Author
BogBod
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Re: Best options for investing after standard retirement contributions

Post by BogBod »

tashnewbie wrote: Wed Sep 16, 2020 11:22 am Could your wife do a backdoor Roth conversion, without worrying about prorated taxes? You don't mention if she has a pretax IRA. If she can do the backdoor conversion without fuss, I think she should do that.
She does have a pretax rollover IRA. About $60K.

And I think there was a time when (before we knew better), we were contributing $300 per month to that IRA (adding to the rolled over funds that were in the account). Does that indicate that the Roth conversion would indeed still be a problem?
Topic Author
BogBod
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Re: Best options for investing after standard retirement contributions

Post by BogBod »

I have seen the following on the wiki
  • 1. Establish an Emergency fund to your satisfaction.
    2. Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment),

    3. Pay off high interest debt (a guaranteed high return, the next best thing to free money),


    4. Contribute to a Health Savings Account (HSA) if available (unlike many other tax deductions, there are no income restrictions to contribute to an HSA),[1]

    5. Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique[note 2]), depending on eligibility and personal circumstances,

    6. Contribute the remainder of the maximum employee contribution to the work-based plan, including an After-tax 401(k) (Mega Back Door) if available,

    7. Contribute to a taxable investing account,

    8. Contribute to non-deductible IRAs (may be better than taxable in certain circumstances) or annuities.
Since there are no limits to #7 - Contribute to a taxable investing account, what the the certain circumstances where someone might jump to #8

And I appreciate the suggestion of looking into IBonds. I do not know much about them and will do some research.
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dratkinson
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Re: Best options for investing after standard retirement contributions

Post by dratkinson »

Don't know if this can help you...


Background info.
Google: IRS Rollover Chart

His problem.

Recall a past topic in which a self-employed person (1 employee, himself) had similar problem---[SEP-IRA, or similar], too much income for deductible tIRA or rIRA.

Recall it was suggested he could start a Solo-401k, and rollover his [SEP-IRA] into new Solo-401k, to remove problem.

OP, see if you can move your SIMPLE-IRA and tIRA into a Solo-401k.

Her problem.

She may be able to rollover her tIRA into her 403b.



Taxable option.

In your assumed higher tax bracket, and using TDR* (target date retirement ) funds in your TA (tax advantaged) accounts, then could use...
--total stock market index fund (VTSAX at Vanguard).
--intermediate term national muni fund (VWITX at Vanguard).

* Try to select taxable options that will not conflict with your TA options and cause problems with TLHing.

Discrete funds in taxable, all-in-one funds in TA, no problems.



Edits. Second thoughts.
Last edited by dratkinson on Thu Sep 17, 2020 3:29 am, edited 3 times in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
tashnewbie
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Re: Best options for investing after standard retirement contributions

Post by tashnewbie »

BogBod wrote: Wed Sep 16, 2020 2:33 pm
7. Contribute to a taxable investing account,

8. Contribute to non-deductible IRAs (may be better than taxable in certain circumstances) or annuities.[/list]

Since there are no limits to #7 - Contribute to a taxable investing account, what the the certain circumstances where someone might jump to #8

And I appreciate the suggestion of looking into IBonds. I do not know much about them and will do some research.
It might be helpful to check out this page of the wiki: https://www.bogleheads.org/wiki/Non-ded ... le_account

Sounds like both you and your wife's IRAs are a mix of pre- and after-tax money. She could look into whether her 403b would allow an incoming transfer of the pretax amounts (it might not allow it), but that would still leave her with some basis in the IRA. If it's a small amount of growth attributable to the basis, then it might be worth converting to Roth IRA. You'd have to pay tax on the conversion of any growth amounts.

For you, as another user said, you could investigate opening a solo 401k and transferring SEP IRA into it, but same issue as your wife - there would be some after-tax contributions and growth left in the IRA.

If you don't want to bother with any of that, then a taxable account seems to be your remaining option. ETA: Removed reference to 529 because I reviewed original post, which states college is taken care of.
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