Opening a IRA at ages 64

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edvest
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Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 7:54 am

I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?

retiringwhen
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Re: Opening a IRA at ages 64

Post by retiringwhen » Fri Apr 12, 2019 8:01 am

edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
Why not. Tax savings in hand is hard to beat especially if you can keep your AA the same. Do you have other tax deferred accounts already like a 401K?

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RickBoglehead
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Re: Opening a IRA at ages 64

Post by RickBoglehead » Fri Apr 12, 2019 8:09 am

edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
I assume that since the H&R Block rep was doing your taxes, they're aware that you're employed with a 401K plan and they know you're level of income, so they know that you meet modified income is low enough to still be able to deduct an IRA? I had remembered your previous posts asking about a change in 401k administrator.

https://www.irs.gov/retirement-plans/pl ... an-at-work
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Stinky
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Re: Opening a IRA at ages 64

Post by Stinky » Fri Apr 12, 2019 8:30 am

edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
You could definitely save on 2018 taxes.

Whether or not it’s a good move in the end depends on your tax rate when money is withdrawn (starting at age 70.5 at the latest). If your tax rate at withdrawal will be the same or less than today, it is a winner.
It's a GREAT day to be alive - Travis Tritt

Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 8:37 am

retiringwhen wrote:
Fri Apr 12, 2019 8:01 am
edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
Why not. Tax savings in hand is hard to beat especially if you can keep your AA the same. Do you have other tax deferred accounts already like a 401K?
I do have a 401K.
What's an AA

Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 8:40 am

RickBoglehead wrote:
Fri Apr 12, 2019 8:09 am
edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
I assume that since the H&R Block rep was doing your taxes, they're aware that you're employed with a 401K plan and they know you're level of income, so they know that you meet modified income is low enough to still be able to deduct an IRA? I had remembered your previous posts asking about a change in 401k administrator.

https://www.irs.gov/retirement-plans/pl ... an-at-work
We did change to a new 401k.
2018 was a poor income year for me. She did the calculation and said i could deduct up to 13K (me and my wife.)
Are you saying if i had a good or really good year I wouldn't be able to deduct contributions?

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RickBoglehead
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Re: Opening a IRA at ages 64

Post by RickBoglehead » Fri Apr 12, 2019 8:47 am

edvest wrote:
Fri Apr 12, 2019 8:40 am
RickBoglehead wrote:
Fri Apr 12, 2019 8:09 am
edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
I assume that since the H&R Block rep was doing your taxes, they're aware that you're employed with a 401K plan and they know you're level of income, so they know that you meet modified income is low enough to still be able to deduct an IRA? I had remembered your previous posts asking about a change in 401k administrator.

https://www.irs.gov/retirement-plans/pl ... an-at-work
We did change to a new 401k.
2018 was a poor income year for me. She did the calculation and said i could deduct up to 13K (me and my wife.)
Are you saying if i had a good or really good year I wouldn't be able to deduct contributions?
The fact that you changed 401k administrators is irrelevant. The fact that you were COVERED by a 401K is relevant. If you're covered by a 401K, then the income level matters (see the link I provided). "Good or really good" is subjective. The link provides you with the actual amount.

If you exceed that level of income, you can't deduct an IRA. Nor can contribute to an IRA if you have no earned income (which may be coming soon for you given your age?). Therefore, if your income is below the threshold, then contributing to a taxable IRA and being able to deduct that $13,000 MAY be advisable. Of course what matter is the tax bracket that you're in for 2018 as compared to the bracket you'd be in when you to start taking mandatory distributions at 70.5. You can see the rate at which you're being taxed for the IRAs by comparing the pre-IRA tax amount vs. the post contribution tax amount, and taking that difference as a percent of $13,000.

For example, if your tax owed drops from $4,000 to 1,140 owed, the difference of $2,860 is the tax that you're saving. $2,860 / $13,000 = 22%.

You could also contribute to a ROTH IRA, which would not be deductible, but would earn tax free until you need it, if ever.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

livesoft
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Re: Opening a IRA at ages 64

Post by livesoft » Fri Apr 12, 2019 8:52 am

Since it appears that both you and your spouse are over the age of 50 ... AND you have earned income of at least $13,000, then you can each separately contribute $6,500 to individual IRAs. But there is a WARNING:

Since you appear to have a 401(k) at work, then your IRA contribution(s) may not be deductible and may not save you on your taxes in years where your income is too high. This is all explained in detail in IRS Publication 590A: https://www.irs.gov/pub/irs-pdf/p590a.pdf You can start reading on page 10: How Much Can I Deduct? and the "Limit if Covered by Employer Plan?" on page 12.
IRS Pub 590A p. 12 wrote:Reduced or no deduction. If either you or your spouse
was covered by an employer retirement plan, you may be
entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status.
Your deduction begins to decrease (phase out) when
your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These
amounts vary depending on your filing status.
To determine if your deduction is subject to the phaseout, you must determine your modified AGI and your filing
status, as explained later under Deduction Phaseout.
Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies.
I am not going to read it for you or look at the Table(s) for you. If you trust your tax preparer and don't want to read, then that's OK, too.

Yes, I recommend that you contribute to IRAs in order to save on your taxes for 2018. You could put the IRA money into a low paying savings account if you want to. You could withdraw at any time, too, since you are over age 59.5, but if you withdrew, then you would pay taxes on the withdrawal.
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Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 9:19 am

This is like an onion and has me now thinking...
Because of my age and the possibility of the forever predicted recession, there's a likelihood I would be very conservative in my ira.

In other words most of the money would sit in their cash fund which is paying???
Or bonds or other conservative products they offer.

Does it still make sense?

delamer
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Re: Opening a IRA at ages 64

Post by delamer » Fri Apr 12, 2019 10:02 am

edvest wrote:
Fri Apr 12, 2019 9:19 am
This is like an onion and has me now thinking...
Because of my age and the possibility of the forever predicted recession, there's a likelihood I would be very conservative in my ira.

In other words most of the money would sit in their cash fund which is paying???
Or bonds or other conservative products they offer.

Does it still make sense?
You still get the tax deduction regardless of what you invest the IRA funds in.

The money is in a savings account now, right? So you’d be no worse off.

CFM300
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Re: Opening a IRA at ages 64

Post by CFM300 » Fri Apr 12, 2019 10:43 am

How much would you save in taxes in 2018 by contributing to an IRA (assuming you are in fact eligible)?

Unless you know that, I don't see how you're going to make a decision.

Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 10:45 am

CFM300 wrote:
Fri Apr 12, 2019 10:43 am
How much would you save in taxes in 2018 by contributing to an IRA (assuming you are in fact eligible)?

Unless you know that, I don't see how you're going to make a decision.
Maybe $1500 if i only do 6500

CFM300
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Re: Opening a IRA at ages 64

Post by CFM300 » Fri Apr 12, 2019 11:13 am

So your current marginal tax rate is probably either 22% or 24%. Any guess as to what your marginal tax rate will be in retirement?

Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 12:15 pm

CFM300 wrote:
Fri Apr 12, 2019 11:13 am
So your current marginal tax rate is probably either 22% or 24%. Any guess as to what your marginal tax rate will be in retirement?
2018 was a bad year for me. I expect to be in the same 22% when i retire.

bberris
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Re: Opening a IRA at ages 64

Post by bberris » Fri Apr 12, 2019 12:54 pm

edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
Even if you retire next year, and your income is the same, you could be taxed less on the withdrawal. That is all that matters.

sport
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Re: Opening a IRA at ages 64

Post by sport » Fri Apr 12, 2019 2:00 pm

If you want to open an IRA for 2018 you should note that 4/15/2019 is the last day you can do that. Once you pass that date, it will be too late and there is no way to fix that.

lakpr
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Re: Opening a IRA at ages 64

Post by lakpr » Fri Apr 12, 2019 3:05 pm

sport wrote:
Fri Apr 12, 2019 2:00 pm
If you want to open an IRA for 2018 you should note that 4/15/2019 is the last day you can do that. Once you pass that date, it will be too late and there is no way to fix that.
Ditto. Run to your local bank now, to open these IRA accounts, or do it on line if you already have a brokerage account. New brokerage accounts take time to fund and you will have missed the deadline.

Topic Author
edvest
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Re: Opening a IRA at ages 64

Post by edvest » Fri Apr 12, 2019 6:48 pm

Thanks guys for all the info and reminders!

I bailed.

My reasoning:
Cramming, as in must act by 14th, older with less of of hope of outdistancing expenses, lengthy corrections, poor portfolio choices that I may make, limited (6.5k 7.0k/year...) funding allowances and questionable finish line tax vindication.

We'll see what the new year brings.

btw,
While digging around today, a 9/2003 $10k I-bond dropped out of one of my folders. It's now worth $16,824 with no state or local taxes. While I know it would never measure up to stock gains, would you have considered it a worthwhile place to put 10K in 2003. Time capsule flashback; 4 kids, stay at home mom.. yep I was a little conservative. Especially by today's standards of no kids/wife and love of expensive imported car. (Sarcastic LoL)

livesoft
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Re: Opening a IRA at ages 64

Post by livesoft » Fri Apr 12, 2019 7:14 pm

OK, I see you bailed. You probably tried to make it too complicated.

You have money in a low paying savings account NOT in an IRA, so it gets taxed.

You could have put $13,000 of that money into two of the same low paying savings accounts IN IRAs, so you get a tax savings and the earnings are not taxed until withdrawal. And you could withdraw ANYTIME without ANY penalties because you are already over ages 59.5.

You probably can still do it on Saturday or Monday if the financial institution where you have a low paying saving account is open.
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Stinky
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Re: Opening a IRA at ages 64

Post by Stinky » Sat Apr 13, 2019 4:40 am

livesoft wrote:
Fri Apr 12, 2019 7:14 pm
OK, I see you bailed. You probably tried to make it too complicated.

You have money in a low paying savings account NOT in an IRA, so it gets taxed.

You could have put $13,000 of that money into two of the same low paying savings accounts IN IRAs, so you get a tax savings and the earnings are not taxed until withdrawal. And you could withdraw ANYTIME without ANY penalties because you are already over ages 59.5.

You probably can still do it on Saturday or Monday if the financial institution where you have a low paying saving account is open.
+1

This sounds like a no-brainer to me.

But OP has only today (Saturday 4/13) and Monday to complete the effort.

Given OP's framing of the situation, it seems like the only downside to him is his time and effort to get the IRA rolling.
It's a GREAT day to be alive - Travis Tritt

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grabiner
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Re: Opening a IRA at ages 64

Post by grabiner » Sat Apr 13, 2019 8:52 pm

Stinky wrote:
Fri Apr 12, 2019 8:30 am
edvest wrote:
Fri Apr 12, 2019 7:54 am
I owe almost $4000.00 to fed and the H&R rep said I could open IRA's for me and my wife and reduce that amount for 2018. The money would come from low paying savings.
Do you think this is an advantage at our ages?
You could definitely save on 2018 taxes.

Whether or not it’s a good move in the end depends on your tax rate when money is withdrawn (starting at age 70.5 at the latest). If your tax rate at withdrawal will be the same or less than today, it is a winner.
And if you are under the income limits (or can use the backdoor if you are over the limits), you also have the option of using a Roth IRA. The Roth IRA income is tax-free, whatever you invest it in, so it is a guaranteed benefit; the traditional IRA is a bigger benefit if your tax rate at withdrawal is lower than your tax rate today.
Wiki David Grabiner

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