Tax question

[Ryan]

I have a Roth IRA and a Roth 401k. Just did my taxes. The accountant told me if I opened up a Traditional IRA and put 5k in it I would get an additional 1k in tax returns. It's a long story but my wife does not want to open and IRA. Did not get a clear answer from my accountant. Can "I" open a traditional IRA or something that could give me a tax break? I have NOT contributed to the roth IRA last year and contribute 10% to the roth 401k.

 

[tonysmach]

I have a Roth IRA and a Roth 401k. Just did my taxes. The accountant told me if I opened up a Traditional IRA and put 5k in it I would get an additional 1k in tax returns. It's a long story but my wife does not want to open and IRA. Did not get a clear answer from my accountant. Can "I" open a traditional IRA or something that could give me a tax break? I have NOT contributed to the roth IRA last year and contribute 10% to the roth 401k.

He is correct. There is limitations if you and/or your spouse participant in company sponsored retirement plans like a 401(k). If neither of you are in a 401(k) plan or other retirement plan at work then there is no limitation. If you can get a tax deduction for putting funds away for retirement, you should do it.

 

[bison]

The traditional will lower your adjusted gross income now but will increase it when you start to benefit from it. But when you start benefiting from it you will probably have little to no income and you will be at the bottom of the tax table. The Roth comes out of your net pay so you already paid tax on it. But regardless of gain it will be tax free when you benefit. The Roth is a better idea for most since the benefit could start much younger than your actual retirement age and it's still tax free at benefit. Also any of the contributions could be used for real estate with no penalty. Gains on them can not be used without penalty even if for purchase of real estate.

 

[bison]

If you can get a tax deduction for putting funds away for retirement, you should do it.

As long as you don't have high interest revolving debt.

 

[tonysmach]

As long as you don't have high interest revolving debt.

I agree. Most financial planners recommend paying off high interest debt before saving for retirement. Once debt is under control, then work to maximize 401k contributions while trying to make extra payments on the mortgage. If you are able to maximize 401K and you still have funds to put away, then maximize IRA (traditional or Roth depending on what makes sense for your particular situation). And then... if you still have funds to put away for retirement, consider a deferred annuity. Just my opinion.

 

[MeanBuicks]

I agree. Most financial planners recommend paying off high interest debt before saving for retirement.

It's also stated that one should never pass up free money in the form of employer matching. Many employers will match dollar for dollar for the first few percent of 401k contributions and you should always look to take advantage of that even if you can't afford to put in much beyond that.

 

[JP112_89]

Be very careful investing. Lots of fee's and restrictions... I never liked to rules you have to wait till your 59 1/2 to pull the money or they hit you with a 10% fee. IT'S YOUR MONEY!!! Do you know if you are investing in? ETF's, mutual funds or stock indexes? Example of fee's... In an equity fund where the historical gross return might be 8%, a 1% expense ratio will consume approximately 12.5% of the investor's return. Are you aware of "Management Fees" or "Distribution or Service (12b-1) Fees as well?

Other things to think about... What would happen if you were going to retire and we had another 9/11? Or another bubble? Are they going to raise the retirement age? It's YOUR MONEY!!! Just remember, the big fish eat the little fish on Wall Street.

I think it's better to pay off your house first. This is what I did. I'm 38 years old without a mortgage or credit card bills. Now I am looking into real estate... YOU CAN write the off money that way as well.

Think about all the money you pay in interest over the course of your loan on a house? The interest is compounded up front too. You only get back a fraction of your interest paid.

Like what was mentioned, pay your higher interest first. Don't pay 10-15% interest on your credit cards THEN turn around and invest in a retirement account. You won't make 10-15% in the market on a consistant basis... it's dumb.


Joe