Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 10:59 AM   #1
Confused about dryer sheets
 
Join Date: Mar 2007
Posts: 4
Are Traditional IRAs useless if I have a 401K?

My employer has a 401k option that I put money into each month. I have read that if you make more than $60,000 a year and have an employer sponsored retirement plan, like I do, that you cannot tax-deduct any contributions to an IRA.

Is this true? Does this make a traditional IRA worthless for me? I can see why a Roth would still be useful, since it is after-tax money in the first place.

What are the benefits of putting money into an IRA account if it is not deductible, as opposed to say putting it into a regular brokerage account? Thanks.
supersaver is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 11:29 AM   #2
Recycles dryer sheets
 
Join Date: Jun 2005
Posts: 56
Re: Are Traditional IRAs useless if I have a 401K?


Not necessarily, because in future years you might be able to rollover your contributions and gains into a Roth. Just make sure that you file form 8606 with your taxes to track your basis, so that portion is not taxed when you rollover.

I think the income limits are loosening up in 2010 to make it easier to do this. Currrently you would want to wait for a low income year before doing the rollover.

So for example, you could contribute $4K to a traditional IRA for 5 years, then have a low income year and rollover the $20K tax free, and pay income taxes on, say $10K gains, and end up with $30K in a Roth.

work4beer is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 11:45 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Location: Crownsville
Posts: 3,711
Re: Are Traditional IRAs useless if I have a 401K?

Quote:
Originally Posted by supersaver
What are the benefits of putting money into an IRA account if it is not deductible, as opposed to say putting it into a regular brokerage account? Thanks.
One advantage of putting money into a traditional IRA, even if you don't get a tax benefit from it initially, it still grows and compounds tax-deferred. As a result, when it comes time to start cashing it out, it should have grown to a much larger amount than it would have if the gains got taxed every year.
Andre1969 is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 12:31 PM   #4
Confused about dryer sheets
 
Join Date: Mar 2007
Posts: 4
Re: Are Traditional IRAs useless if I have a 401K?

Andre, thanks for the reply, I will open one then.

Beer, I don't think I will be able to roll into a Roth because within a few years my salary will be more than $120,000 or whatever the limit is for Roths. However, I am interested in learning about this 8606 form. I do not know much about doing taxes efficiently, but is this form a must to fill out if I have an IRA? Thanks for any info. I just don't want to get screwed on any tax advantages out there.
supersaver is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 12:36 PM   #5
Gone but not forgotten
Khan's Avatar
 
Join Date: Aug 2006
Posts: 6,924
Send a message via AIM to Khan
Re: Are Traditional IRAs useless if I have a 401K?

Quote:
Originally Posted by supersaver
Andre, thanks for the reply, I will open one then.

Beer, I don't think I will be able to roll into a Roth because within a few years my salary will be more than $120,000 or whatever the limit is for Roths. However, I am interested in learning about this 8606 form. I do not know much about doing taxes efficiently, but is this form a must to fill out if I have an IRA? Thanks for any info. I just don't want to get screwed on any tax advantages out there.
It should be filled out when you make a non-deductible contribution to a traditional IRA.
__________________
"Knowin' no one nowhere's gonna miss us when we're gone..."
Khan is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 12:39 PM   #6
Confused about dryer sheets
 
Join Date: Mar 2007
Posts: 4
Re: Are Traditional IRAs useless if I have a 401K?

Quote:
Originally Posted by Khan
It should be filled out when you make a non-deductible contribution to a traditional IRA.
So I need to fill out this form twice a month if I make contributions twice a month?
supersaver is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 12:40 PM   #7
Gone but not forgotten
Khan's Avatar
 
Join Date: Aug 2006
Posts: 6,924
Send a message via AIM to Khan
Re: Are Traditional IRAs useless if I have a 401K?

Quote:
Originally Posted by supersaver
So I need to fill out this form twice a month if I make contributions twice a month?
I think once a year is sufficient.
__________________
"Knowin' no one nowhere's gonna miss us when we're gone..."
Khan is offline   Reply With Quote
Re: Are Traditional IRAs useless if I have a 401K?
Old 03-16-2007, 08:20 PM   #8
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
Re: Are Traditional IRAs useless if I have a 401K?

Ever since I starting maxing out 401(k) contributions and could afford to contribute to an IRA I have done so even though it has always been after tax money.

I figure that it is going to grow tax deffered so it is still worth doing. After after RE it can still be converted to a Roth if that makes sense.

The 8606 form is easy - Turbo Tax and the like copy your basis from the year before and you enter what you put in after tax in the currrent year. Easy peasy.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Reply

Tags
401k


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
500 search phrases for 2006 dory36 Other topics 2 01-16-2007 07:00 AM
Roth 401k vs Traditional 401k keldon FIRE and Money 3 01-08-2007 12:25 PM
Traditional 401k or Roth 401k HatePayingTaxes Young Dreamers 4 12-30-2006 09:59 PM
Paying off Debt vs. 401(k) Contributions BigMoneyJim FIRE and Money 4 02-10-2003 10:06 AM

» Quick Links

 
All times are GMT -6. The time now is 01:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.