stillmovingforward
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Post by stillmovingforward on Nov 5, 2021 21:55:51 GMT -5
IRA questions - My DH (50+) was badly injured at work. He has a Traditional IRA (no available 401(k)) which we fund each year. I have a 401(k). This year there will be no problem as he earned enough money that he can fund his IRA in full and we'll get the tax benefit. However, its very unlikely that he will be able to work next year, if ever again. We really need to fund retirements as we got a late start. So we're wondering what to do about his IRA contributions. He'll be on L&I for a while. We don't what will happen next year. If he'll be back to work (doubt it), L&I, or what. But, if he doesn't go back to work, what is our best option to fund his retirement? Right now, he has a traditional IRA. We file taxes as 'married, filing jointly'. We have a low lifestyle in a high cost of living area. I make enough to support us but every little bit for savings helps. - Would he be able to fund the IRA with disability payments (L&I is not taxed) with pretax money? In essence, take a tax deduction for his contribution to his traditional IRA off the taxes I pay? If I will be the only person with a tax paying job next year.
- Should we convert his IRA to a ROTH or just start him a ROTH IRA so the money goes in taxed and comes out without taxes?
- Any other ideas?
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CCL
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Post by CCL on Nov 6, 2021 0:07:11 GMT -5
He should be able to contribute to his IRA based on your income. He doesn't have to have his own earned income. I contributed to my IRAs while I was home with the kids based on hubby's income when mine was $0.
Do you have a 401k with a company match? I would contribute to that first. Allocations to Roth vs traditional IRAs would depend on income. If we were in a low tax bracket I would go with the Roth. If we were in a high bracket then traditional, as long as we could get the tax deduction.
I'm currently (and for the last few years) converting our traditional IRAs to Roths. It's going slow and has been tricky to keep our income where it needs to be to stay in the 12%/0% federal tax brackets. Sometimes I wish we had put it in Roths to begin with. We have saved money, though. I'm thinking we were in the 25% bracket most of the years we contributed and got the tax deductions.
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stillmovingforward
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Post by stillmovingforward on Nov 6, 2021 0:38:07 GMT -5
Here's where I get confused. I cannot put money into a traditional IRA and get the tax benefit. Only he can. But if it's my earned money we put in for him, would we still get the tax benefit we used to with his earned money? I get the full match from my employer. For his peace of mind, he needs to see his 'own' fund grow. Going from a workaholic to potentially never working again has been devastating for him. Even though I've always been the primary wage earner.
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teen persuasion
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Post by teen persuasion on Nov 6, 2021 8:46:18 GMT -5
He can contribute to his tira, as long as one of you has enough income. We funded Roth IRAs for both of us even when only DH was employed. It's a spousal IRA.
Money is fungible. If you want to do the funding from his L&I, or from your income, doesn't really matter as long as you earn more than your contributions to your 401k + his contributions to tIRA + your contributions to tIRA (if you do one). What you can't do is earn $5k, contribute $14k to some combo of those. See what I mean?
About Roth vs traditional: what's your marginal rate now? What tax are you avoiding by putting it in traditional (or, what's the cost to go Roth)? Compare that to what you expect your tax rate to be in retirement. If it's higher now, traditional. If it's higher in retirement, Roth.
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CCL
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Post by CCL on Nov 6, 2021 18:32:08 GMT -5
Yes. As long as the two of you are within income/contribution limits he can still contribute and get the same benefits from it that you would. It doesn't matter whether you or he earns the income.
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stillmovingforward
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Post by stillmovingforward on Nov 6, 2021 20:53:13 GMT -5
And we can still get the tax benefit for the amount put in that year?
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minnesotapaintlady
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Post by minnesotapaintlady on Nov 6, 2021 21:06:25 GMT -5
And we can still get the tax benefit for the amount put in that year? Yes, it's completely based off of joint income if you're married. He could earn nothing and you could contribute to an IRA for him as well as yourself as long as you earned over the amount of the contributions combined.
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giramomma
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Post by giramomma on Nov 6, 2021 23:18:06 GMT -5
Another option is to split IRA contributions between Roth and Taxable. That is what DH and I do.
It does make for a little more work when it's time to make the deposits, but it is a compromise that I am happy with.
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Deleted
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Post by Deleted on Nov 7, 2021 13:51:53 GMT -5
Yes. As long as the two of you are within income/contribution limits he can still contribute and get the same benefits from it that you would. It doesn't matter whether you or he earns the income. The really good public policy motivation behind this is that it provides more retirement security for the non-wage-earning spouse. Historically that's been the woman and women typically outlive their husbands so they need that extra savings. No problem at all if they made zero and it comes from the spouse's earnings.
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stillmovingforward
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Post by stillmovingforward on Nov 7, 2021 15:10:54 GMT -5
Thanks everyone! Much appreciated. The taxes add up to a lot of money for us so I want to make sure the money is doing its best work for us.
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