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Message
Retirement planning, some questions
Posted on 1/18/12 at 8:55 pm
Posted on 1/18/12 at 8:55 pm
So I'm currently contributing 15% gross income into a 401K account
I don't make enough money to max out the 401K and I really don't make enough to justify funding another account right now
However, I'm about a year out from having my car note and some other small debts completely wiped out so that will free up some extra cash flow
So here is my plan: You tell me if it's stupid or not
Continue with the 401K (duh)
Contribute the max amount to a traditional IRA
The following year use the tax savings to start a Roth IRA
From that point forward, put 100 a month into the roth and continue with the annual tax deferred lump sump payment ~1300
Is this madness or is this a decent plan?
I don't make enough money to max out the 401K and I really don't make enough to justify funding another account right now
However, I'm about a year out from having my car note and some other small debts completely wiped out so that will free up some extra cash flow
So here is my plan: You tell me if it's stupid or not
Continue with the 401K (duh)
Contribute the max amount to a traditional IRA
The following year use the tax savings to start a Roth IRA
From that point forward, put 100 a month into the roth and continue with the annual tax deferred lump sump payment ~1300
Is this madness or is this a decent plan?
3
Posted on 1/18/12 at 9:17 pm to Powerman
sounds like a great plan, keep up the 15% and you will be a very happen person at retirement
Posted on 1/18/12 at 9:23 pm to QD Tiger
But is my IRA strategy sensible?
I know it's better than doing nothing in addition, I just don't know if it's an optimum strategy. My thinking is I'm trying to pay as little taxes as possible and then use the tax savings to fund a supplemental ROTH
Ideally one day I'd be able to max the roth as well
I know it's better than doing nothing in addition, I just don't know if it's an optimum strategy. My thinking is I'm trying to pay as little taxes as possible and then use the tax savings to fund a supplemental ROTH
Ideally one day I'd be able to max the roth as well
Posted on 1/18/12 at 9:48 pm to Powerman
quote:
From that point forward, put 100 a month into the roth and continue with the annual tax deferred lump sump payment ~1300
Maybe I am reading this wrong, but why are you going from maxing out your traditional IRA to only contributing a total of $2500 to your IRAs next year?
Posted on 1/18/12 at 11:05 pm to LSUtoOmaha
quote:
Maybe I am reading this wrong, but why are you going from maxing out your traditional IRA to only contributing a total of $2500 to your IRAs next year?
No. I'll try to break it down so it's a little clearer.
This year - 401K only
2013 - 401K + 5K in traditional IRA
2014 - 401K + 5K in traditional IRA + tax savings from contributing to traditional IRA go into Roth IRA
At some point if my income goes up, I'm planning on putting an additional 100 a month into the Roth
Posted on 1/18/12 at 11:13 pm to Powerman
What's the max you can contribute to a 401k a year?
Posted on 1/18/12 at 11:53 pm to wegotdatwood
Well by law it's 16.5K a year
You asking what % I could put in? I suppose I could increase the amount withheld from my check instead of getting into the IRA business
You asking what % I could put in? I suppose I could increase the amount withheld from my check instead of getting into the IRA business
Posted on 1/19/12 at 12:09 am to Powerman
I don't know much, but why are you going traditional IRA first instead of mixing the 401K with the roth to start?
Posted on 1/19/12 at 12:30 am to The Easter Bunny
quote:
I don't know much, but why are you going traditional IRA first instead of mixing the 401K with the roth to start?
Well I like the idea of maximizing all of my tax deferred options that benefit me now before I want to get into a roth
I figure once you factor in inflation the tax benefits now outweigh the tax benefits at distribution time. Particularly if I'm disciplined enough to put those tax savings into the roth
IDK, it's just my way of thinking about it. I'm not a guru, which is why I'm here.
Posted on 1/19/12 at 2:03 pm to Powerman
The rules for contributing to a traditional IRA and a 401(k) are complex. It some cases you may not be able deduct the traditional IRA contributions. It has to do with income, marriage, your spouse contributing to a 401(k)etc....
There are no additional rules for Roth IRAs.
I would go the Roth direction as opposed to having all of you eggs in the tax deductible basket. The point of splitting is that you don't know the future of tax rates. If they go up then you have done better in the Roth. There are other benefits to Roth such as no RMDs and are better for your heirs in inheritance.
There are no additional rules for Roth IRAs.
I would go the Roth direction as opposed to having all of you eggs in the tax deductible basket. The point of splitting is that you don't know the future of tax rates. If they go up then you have done better in the Roth. There are other benefits to Roth such as no RMDs and are better for your heirs in inheritance.
Posted on 1/19/12 at 3:39 pm to Powerman
quote:
Well by law it's 16.5K a year
Increased to $17k this year, or $22k if > 50.
If the money you would contribute to a Roth is taxed @ 25% or higher you likely would be better off with the tax deduction of a TIRA. If your income is too high for the deduction ($110k AGI single filer) do the Roth, and a deductible 25% fed rate $5,000 TIRA contribution is the same as $3,750 AT into a Roth. I like the tax diversification a Roth offers, but the future regarding taxation, etc is unknowable. Current retirees benefit from low taxation minimizing the Roth tax free benefit, that may not be the case in the future.
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