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Funding This Years IRA
Old 04-30-2010, 03:22 AM   #1
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Funding This Years IRA

I've collected unemployment this year in CA and didn't pay taxes on it. I've now left the US, living in Asia. Inexpensive to live here. I only need $2000 a month. I'm 60. I have about $200k in a trading account and $100k in an IRA. I'm just living on dividends and cash savings. Haven't had to get into the principle. I'll probably start collecting SS in 2 years.

My questions;
1. Any reason I shouldn't transfer money over to the IRA account to offset the income from taxes, right away? I believe it's $5000.

2. Should I be pulling money from the IRA account to meet expenses to offset any money I might need over the dividend income? Or should it be in some combination with the regular account? It's not a Roth.
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Old 04-30-2010, 09:49 AM   #2
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You should probably spend down your taxable account before withdrawing any money from the IRA.

While in a low tax bracket, you should probably convert the IRA to a Roth IRA in a piecemeal fashion while you are in a very low tax bracket. There is some kind of 5-year rule about taking money out of a Roth IRA, so check that out if you believe you will need the money sooner. OTOH, with a piecemeal conversion, you can leave the Roth alone and withdraw from what remains in the traditional IRA.

To contribute to an IRA, you need earned income that has not been excluded by the foreign income exclusion. It sounds like you worked in 2010 in the US, so that you have some earned income that can go in the IRA. I would certainly look into making a contribution. If your income is low enough and you are eligible for a Roth IRA, I would certainly look into whether contributing directly to the Roth now is better. You would want to be in a 15% or lower tax bracket I would think.

I do not know if unemployment can be used to fund an IRA.
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Old 04-30-2010, 11:03 AM   #3
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OP didn't mention a spouse, but if there is a spouse with earned income, you can contribute to an IRA, limited to the earned income, I believe.
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Old 04-30-2010, 11:17 PM   #4
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No spouse. I don't know if unemployment is considered earned income. It's taxed like it Federally. Good idea to go with a Roth if I do it.

Wouldn't dividend income be earned income? Come to think of it most of the dividend income is coming from CA Muni Bond ETFs so isn't taxable anyway.
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Old 04-30-2010, 11:30 PM   #5
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Quote:
Originally Posted by Pete44 View Post
No spouse. I don't know if unemployment is considered earned income. It's taxed like it Federally. Good idea to go with a Roth if I do it.

Wouldn't dividend income be earned income? Come to think of it most of the dividend income is coming from CA Muni Bond ETFs so isn't taxable anyway.
I don't believe unemployment money is earned income and dividend is definitely not earned income.

Traditional IRA: Can I Contribute?

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Can I Establish a Traditional IRA?
Generally, if you have earned income from a job or alimony, you can establish a Traditional IRA before the tax year when you reach age 70 .

Quote:
How Much Can I Contribute to IRAs Each Year?
You can currently contribute up to $5,000 or 100% of your taxable compensation for the year, whichever is less. Alimony is counted as earned income, but pension and investment income are not. The $5,000 limit applies to total contributions to all IRAs (Traditional and Roth).
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