Ava
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Post by Ava on Jan 27, 2018 12:01:45 GMT -5
How do you fund it? How does it work? If you do direct deposit, do you still pay taxes on the money you transfer to the traditional IRA and then get a refund when you file your taxes?
I know there are income limits that apply to it, but not sure how much and what are the limits all about.
What are the advantages and disadvantages compared to a Roth IRA?
Thanks for the info.
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quince
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Post by quince on Jan 27, 2018 12:14:57 GMT -5
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resolution
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Post by resolution on Jan 27, 2018 12:28:24 GMT -5
I don't currently contribute to a traditional IRA because I am funding a Roth IRA. But the way that it works is you open the IRA at the institution of your choice and then you deposit money from your wages/earnings that was already taxed. When you file your taxes, there is a line item to deduct your IRA contributions, so the tax break is realized at the time that you file your taxes.
Fidelity has a pretty good chart for the income limits and rules based on your income. www.fidelity.com/retirement-ira/contribution-limits-deadlines www.fidelity.com/learning-center/personal-finance/retirement/traditional-vs-roth
As far as advantages or disadvantages, the traditional is taxed when you withdraw it while the Roth is taxed before you contribute it. All other things remaining equal, it should work out to being the same amount of money at the end. However things are never going to remain equal.
- If you expect your tax rate to be lower in retirement, there is a benefit to deferring the tax until retirement (Traditional) - If you expect taxes to go up between now and retirement, there is a benefit to paying them now instead of waiting (Roth) - If you need to lower your taxable income now to qualify for other credits/income based programs, the traditional can be used to artificially lower your income. - If you think you might want to withdraw your principal early, it can be withdrawn without penalty in the Roth. - If you have a mix of both types, you can use them in retirement to manage your taxable income.
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Ava
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Post by Ava on Jan 27, 2018 13:24:02 GMT -5
Ok. Thanks for the information. My main doubt was how the traditional IRA didn't pay income taxes. Now I understand it.
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Rob Base 2.0
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Post by Rob Base 2.0 on Jan 27, 2018 13:30:37 GMT -5
I want to fine tune one thing above--once the money has been in a Roth IRA for FIVE years, then the principal can be withdrawn without penalty
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Deleted
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Post by Deleted on Jan 27, 2018 13:39:31 GMT -5
I want to fine tune one thing above--once the money has been in a Roth IRA for FIVE years, then the principal can be withdrawn without penalty The amount you contribute to a Roth IRA can always be withdrawn at any time. You're thinking of earnings. To withdraw that you have to be 59.5 AND have had the account open for 5 years. www.rothira.com/blog/the-five-year-rule-with-roth-ira-withdrawals
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Rob Base 2.0
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Post by Rob Base 2.0 on Jan 27, 2018 13:51:57 GMT -5
I want to fine tune one thing above--once the money has been in a Roth IRA for FIVE years, then the principal can be withdrawn without penalty The amount you contribute to a Roth IRA can always be withdrawn at any time. You're thinking of earnings. To withdraw that you have to be 59.5 AND have had the account open for 5 years. www.rothira.com/blog/the-five-year-rule-with-roth-ira-withdrawalsI stand corrected
Thanks though!
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tallguy
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Post by tallguy on Jan 27, 2018 14:18:57 GMT -5
How do you fund it? How does it work? If you do direct deposit, do you still pay taxes on the money you transfer to the traditional IRA and then get a refund when you file your taxes?I know there are income limits that apply to it, but not sure how much and what are the limits all about. What are the advantages and disadvantages compared to a Roth IRA? Thanks for the info. I think we might be mixing up some things here. Direct deposit is generally considered to be payments from corporations or government agencies that go directly into your account without a paper check. Examples would be paychecks, Social Security checks, tax refunds, other government benefits, etc. Are you actually splitting your paycheck so that some is diverted to an IRA account, or is that a theoretical question above? Generally, one will open an IRA and then either transfer money from another account to the IRA or send a check to be deposited into the IRA account. And technically, you do not pay taxes on the money you transfer and then receive a refund. You take the deduction when you file your taxes. It doesn't matter where the money came from as long as you had earned income over the amount you are contributing. I would in the past fund my IRA in January out of savings and then earn the income later.
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giramomma
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Post by giramomma on Jan 27, 2018 14:25:04 GMT -5
We do both, half in a ROTH and half in a Traditional IRA.
I don't have a crystal ball to see what the tax code is going to look like in 20-40 years.
My retirement strategy is to spread it around. We've got some of everything: pensions, 403b/457, IRAs (traditional, SEP, Roth) and a taxable.
Hopefully, between all of that and working a part time job as much or as little as I need to...we'll be equipped to handle whatever gets thrown at us, either because of market changes, tax law changes, or other laws that maybe passed that affect our retirement..both at the state and national level.
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Happy prose
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Post by Happy prose on Jan 27, 2018 14:49:20 GMT -5
I'm not sure I understood the links. If my husband and I both have employer sponsered plans, but didn't fund a roth this year, we could fund and deduct an IRA? I'm under the income limit. I thought our work plans (401k and 457) excluded us from the tax deduction of an IRA. I think I was wrong.
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tallguy
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Post by tallguy on Jan 27, 2018 15:03:43 GMT -5
I'm not sure I understood the links. If my husband and I both have employer sponsered plans, but didn't fund a roth this year, we could fund and deduct an IRA? I'm under the income limit. I thought our work plans (401k and 457) excluded us from the tax deduction of an IRA. I think I was wrong. Yes, you can deduct an IRA contribution even if covered by an employer plan if your MAGI is low enough. For 2018 it is fully deductible up to $101,000 and phases out up to $121,000. Here is the IRS link. For 2017 the amount is $99,000 phasing out at $119,000. The amounts for a single taxpayer are lower.
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Deleted
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Post by Deleted on Jan 27, 2018 15:18:08 GMT -5
Do you max your tax-deferred at work? I throw as much as I can into those and put the tax savings into a Roth.
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Post by The Walk of the Penguin Mich on Jan 27, 2018 15:31:59 GMT -5
Another advantage of having a traditional IRA is when you leave a job, you can your 401k into it, consolidating accounts.
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tallguy
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Post by tallguy on Jan 27, 2018 15:42:18 GMT -5
Best bet for everybody I think is to have a good mix of tax-free (Roth), tax-deferred (IRA and 401k or equivalent), and taxable. It gives you a lot more flexibility in managing withdrawals and taxes in retirement.
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Happy prose
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Post by Happy prose on Jan 27, 2018 15:54:17 GMT -5
Do you max your tax-deferred at work? I throw as much as I can into those and put the tax savings into a Roth. Yes, maxed. I also contribute to a Roth, and regular taxable account. I was just wondering if it would be smart to skip the Roth for 2018, but now see even if I did, I would only get partial deduction due to income.
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Ava
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Post by Ava on Jan 27, 2018 16:01:52 GMT -5
I currently have a Roth IRA, but I am interested in a traditional IRA at the moment. Since my Roth IRA is with Fidelity, I've already opened my traditional IRA there, but is empty right now.
For the Roth IRA I would use my bonus, tax refund, money gifts for my birthday to fund it. Can I do the same with a traditional IRA or do I have to divert part of my paycheck to it?
I would like to fund it the same way I did with the Roth IRA because it's easier for me than putting away part of my paycheck there. By the responses here, it looks like I'll be able to fund it the same way.
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Happy prose
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Post by Happy prose on Jan 27, 2018 16:05:53 GMT -5
I currently have a Roth IRA, but I am interested in a traditional IRA at the moment. Since my Roth IRA is with Fidelity, I've already opened my traditional IRA there, but is empty right now. For the Roth IRA I would use my bonus, tax refund, money gifts for my birthday to fund it. Can I do the same with a traditional IRA or do I have to divert part of my paycheck to it? I would like to fund it the same way I did with the Roth IRA because it's easier for me than putting away part of my paycheck there. By the responses here, it looks like I'll be able to fund it the same way. Yes, but read some of the links others have posted. If you contribute the full amount to the Roth, you can't take the tax deduction for the IRA.
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tallguy
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Post by tallguy on Jan 27, 2018 16:12:22 GMT -5
I currently have a Roth IRA, but I am interested in a traditional IRA at the moment. Since my Roth IRA is with Fidelity, I've already opened my traditional IRA there, but is empty right now. For the Roth IRA I would use my bonus, tax refund, money gifts for my birthday to fund it. Can I do the same with a traditional IRA or do I have to divert part of my paycheck to it?I would like to fund it the same way I did with the Roth IRA because it's easier for me than putting away part of my paycheck there. By the responses here, it looks like I'll be able to fund it the same way. Again, you do not fund an IRA through payroll deduction. I suppose it is possible to split your paycheck if your employer allows it, but funding a traditional IRA is the same as funding a Roth, which it appears is what you want in the first place. Forget about ANY paycheck/IRA connection you have in your mind. They are not related. Also, you can contribute to either a traditional IRA, a Roth IRA, or both, but the contribution limit is the same for all combined accounts. If you have a $5500 limit, that is the total that you can contribute regardless of how many accounts you split it amongst.
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Ava
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Post by Ava on Jan 27, 2018 17:10:53 GMT -5
I currently have a Roth IRA, but I am interested in a traditional IRA at the moment. Since my Roth IRA is with Fidelity, I've already opened my traditional IRA there, but is empty right now. For the Roth IRA I would use my bonus, tax refund, money gifts for my birthday to fund it. Can I do the same with a traditional IRA or do I have to divert part of my paycheck to it?I would like to fund it the same way I did with the Roth IRA because it's easier for me than putting away part of my paycheck there. By the responses here, it looks like I'll be able to fund it the same way. Again, you do not fund an IRA through payroll deduction. I suppose it is possible to split your paycheck if your employer allows it, but funding a traditional IRA is the same as funding a Roth, which it appears is what you want in the first place. Forget about ANY paycheck/IRA connection you have in your mind. They are not related. Also, you can contribute to either a traditional IRA, a Roth IRA, or both, but the contribution limit is the same for all combined accounts. If you have a $5500 limit, that is the total that you can contribute regardless of how many accounts you split it amongst. Perfectly explained, thank you
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Ava
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Post by Ava on Jan 27, 2018 17:13:02 GMT -5
I currently have a Roth IRA, but I am interested in a traditional IRA at the moment. Since my Roth IRA is with Fidelity, I've already opened my traditional IRA there, but is empty right now. For the Roth IRA I would use my bonus, tax refund, money gifts for my birthday to fund it. Can I do the same with a traditional IRA or do I have to divert part of my paycheck to it? I would like to fund it the same way I did with the Roth IRA because it's easier for me than putting away part of my paycheck there. By the responses here, it looks like I'll be able to fund it the same way. Yes, but read some of the links others have posted. If you contribute the full amount to the Roth, you can't take the tax deduction for the IRA. The total is $5,500 a year, which I can split between my traditional IRA and my Roth IRA any way I want. I haven't made any contributions yet for 2018 and I am thinking of putting all of it in the traditional and nothing in the Roth for this year.
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Post by The Walk of the Penguin Mich on Jan 27, 2018 19:30:03 GMT -5
Yes, but read some of the links others have posted. If you contribute the full amount to the Roth, you can't take the tax deduction for the IRA. The total is $5,500 a year, which I can split between my traditional IRA and my Roth IRA any way I want. I haven't made any contributions yet for 2018 and I am thinking of putting all of it in the traditional and nothing in the Roth for this year. Or you can just alternate years. One year traditional, next year Roth. Might make it easier to keep track of.
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schildi
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Post by schildi on Jan 28, 2018 12:14:11 GMT -5
I am a little confused by these deductibility limits. I am covered by a 401k and max it. But wife is not. We file married joint. Can she deduct Trad IRA contributions? Up to what limit?
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Deleted
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Post by Deleted on Jan 28, 2018 12:36:21 GMT -5
I am a little confused by these deductibility limits. I am covered by a 401k and max it. But wife is not. We file married joint. Can she deduct Trad IRA contributions? Up to what limit? According to the IRS link posted above. For MFJ, if you are covered by a plan at work, then deductibility for your IRA starts to phase out at 101K MAGI. If you do not have a plan at work, but your spouse does, then deductibility (for your IRA) begins phaseout at 189K. So, each spouse has a different income limit to contribute to their personal IRA even though you're filing joint.
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