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IRA and 401(k) in "final" year of w*rk
Old 03-19-2013, 09:16 AM   #1
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IRA and 401(k) in "final" year of w*rk

Hi --

I unexpectedly took ER on Feb 1 (layoff). The good news is that this kept me from "one more year" syndrome. The bad news is that my planning/education isn't yet complete -- especially around IRAs.

For several years I have followed:
  1. Contribute to 401k (or 403b) to get the full employer match
  2. Maximize Roth IRA -- with catch-up
  3. Maximize 401k (or 403b) -- with catch-up
  4. Invest in taxable account


What can I do this year? Because I had very short notice, I couldn't manipulate my January 401(k) contributions, so for 2013 I only contributed $4500, which is a far cry from my max+catch-up.


What options do I have at this point for tax advantaged savings? I maxed my 2013 Roth contribution ($6500) in January. I assume further contributions to my 401(k) for 2013 are not allowed -- they must come from payroll deduction, right? And I can't fund a pre-tax IRA in addition to a Roth in 2013?


BTW, I have IRAs at Vanguard (401(k) rollovers from former employers) which I plan to systematically convert to Roths over the next few years, staying in the 15% tax bracket. I will rollover the 401(k) from the most recent employer (about 25% of my IRA/401(k) assets) to Vanguard as well, unless there's a good reason not to have all my IRAs at one company.


Thanks,
BarbWire
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Old 03-19-2013, 09:22 AM   #2
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Can you convert some traditional IRA to Roth? You have wage headroom to play with to stay in a very favorable tax bracket, even with taking that income in the conversion.
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Old 03-19-2013, 09:29 AM   #3
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Yes, I plan to do some Roth conversion later in the year.

I'm really wondering if there is some way to put more money into retirement accounts in 2013 (since I have some earned income in 2013) beyond the contributions I have already made to my Roth and my 401(k).

Thanks.
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Old 03-19-2013, 10:03 AM   #4
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We have a high deductible health insurance plan and health savings accounts and make the maximum contribution each year ($8,250 for a couple over 55 IIRC) so a HSA might be a possibility for you. HSA is similar to a Roth except the funds must be spent on qualified medical expenses.

What I have found is that my focus in the first couple years of retirement have been to maximize capital gains in my taxable accounts at 0% (by keeping my total taxable income in the 15% bracket) and in effect stepping up my basis of my taxable account investments by reinvesting in the same securities. While like you I had planned Roth conversions, I have focused more on the step up in basis for now and will focus on Roth conversion once that is done.
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Old 03-19-2013, 10:15 AM   #5
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Quote:
Originally Posted by BarbWire View Post

I'm really wondering if there is some way to put more money into retirement accounts in 2013 (since I have some earned income in 2013) beyond the contributions I have already made to my Roth and my 401(k).

Thanks.
Unless you go back to work (), I think your days of adding to your tax deferred retirement accounts are over. You've maxed your Roth IRA for 2012 and 2013 (the two years you could currently contribute for) and you no longer have paychecks to deduct 401k contributions from.


Is there any other pay still coming (vacation, bonus, severance, etc.) that your past employer owes you where you could have additonal 401k money withheld from?
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Old 03-19-2013, 10:25 AM   #6
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....Is there any other pay still coming (vacation, bonus, severance, etc.) that your past employer owes you where you could have additonal 401k money withheld from?
I changed my 401k deductions to 100% just before I was done so all of my unpaid vacation ended up going into my 401k.
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Old 03-19-2013, 10:29 AM   #7
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I changed my 401k deductions to 100% just before I was done so all of my unpaid vacation ended up going into my 401k.
Smart move. But unless OP has income still coming from his former employer, he won't be able to do that.
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Old 03-19-2013, 11:00 AM   #8
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short of getting another j*b or generating some self employment income that you could stick in a personal 401k or SEP/IRA I believe that you are out of luck.
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Old 03-19-2013, 12:58 PM   #9
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Hopefully, your taxable earned income exceeded your Roth contribution. Otherwise, you'll need to pull some out.
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Old 03-19-2013, 01:09 PM   #10
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Kind of pointless avoiding taxes if you aren't going to have any income.
You have contributed to the Roth IRA for 2013, which is probably the best you can do.
You said you will be doing some Roth conversions. That should be your main plan. If you don't have too much in taxable accounts, the Roth conversions will essentially be putting that taxable value into the Roth account and missing the 401k contributions will have very little effect. You will only miss the 401k max-out if you have too much in your taxable accounts. Then you might have been able to use that extra 401k value to convert a little more. Not really a big deal either way.

I'm trying to get DW to work a little bit into 2014 just so we can make Roth IRA contributions.
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Old 03-19-2013, 01:53 PM   #11
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Thanks, all.

Had I not been "released" on relatively short notice, indeed my plan would have been to alter 401(k) contributions so that all of my unused vacation would go into the 401(k).

Yes, I have enough earned taxable income to cover the Roth (assuming that all you need is $6500). I'm not planning to get another j*b (unless something that would be fun comes along) so my only other income this year will be UI and about $1200 from a very small business.

I've just gotten a HDHP (starts April 1) and will set up an HSA with that. I'm still trying to find out if I can contribute the full annual amount, or only 75% (since the policy will only be in effect for 9 months in 2013).

(Hmmm. If I put the max in the HSA, then I probably won't have enough taxable income for the full Roth amount. I'll have to run some numbers...)


I'm going to have to noodle a bit more on pb4uski's comment:
What I have found is that my focus in the first couple years of retirement have been to maximize capital gains in my taxable accounts at 0% (by keeping my total taxable income in the 15% bracket) and in effect stepping up my basis of my taxable account investments by reinvesting in the same securities. While like you I had planned Roth conversions, I have focused more on the step up in basis for now and will focus on Roth conversion once that is done.
I have significant capital loss carryover from 2008 which I had planned to use to when rebalancing my portfolio next month. The comment adds another dimension to the strategy for that.

Again, thanks all!
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Old 03-19-2013, 02:04 PM   #12
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Research this because I'm not sure of it.
You can recharacterize your 2013 ROTH contribution to a Traditional IRA. It should then be tax deductible to the extent that you can deduct contributions to an T-IRA.

However, you may want to think about what your 2013 tax brackets are compared to future tax brackets (when other sources of income, if any, kick in) and also take into account RMDs etc.
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Old 03-19-2013, 03:32 PM   #13
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Do you own research BarbWire, but IIRC the criteria for the Roth controbutons is earned income, not AGI or TI so your HSA contributions shouldn't cause a problem to your Roth contribution.
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Old 03-19-2013, 04:43 PM   #14
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Do you own research BarbWire, but IIRC the criteria for the Roth controbutons is earned income, not AGI or TI so your HSA contributions shouldn't cause a problem to your Roth contribution.
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Old 03-19-2013, 04:57 PM   #15
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That's why I have always put 50% in the 401k; no match, so I don't worry about that. Just trying to beef up the deferral in case I get canned / lay'd off.

I max out after a few months and then get a hefty raise...
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Old 03-20-2013, 06:40 AM   #16
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That's why I have always put 50% in the 401k; no match, so I don't worry about that. Just trying to beef up the deferral in case I get canned / lay'd off. I max out after a few months and then get a hefty raise...
I've had to come up with a silly little scheme to front-load my wife's 401k contributions, while still leaving enough headroom left over for her to claim the company match, which is limited to 3% of each paycheck gross. Her contract ends in September, and it isn't clear if the company will be in a position to extend it. (If they don't, it is possible that that would constitute involuntary ER for my wife, or at least we are worried that that will be the last time she'll have the ability to contribute to a 401k.) So we're riding that fine line between worrying about not maxing out her contributions for the year versus not leaving some company match on the table for October through December.

While I'm personally not facing the prospect of involuntary ER, I have a related but opposite problem. I currently have no company match, but there is a small possibility that starting in October I will have 50% of 6%. So I needed to make sure that my contributions would go through to the end of the year, just in case. I've taken the easy way out and just set up level contributions the whole year; but I toyed with the idea of front-loading it, with a plan to jump down to 6% in October, while just barely getting to the limit in that last paycheck (or perhaps reserving enough of the limit to do 8% starting in October, so I don't have to try to hit the limit with the last dollar of my last paycheck contribution).

I wish these systems for setting allocations were designed to be a bit more sophisticated, so that you could enter an exact dollar-and-cents amount in instead of a whole-number percentage, and could put in place effective dates so that a change you make doesn't miss the paycheck you intended for it to go into effect. The lack of the effectiveness date capability can really screw us up, i.e., if the front-loaded percentage is carried over a paycheck more than we intended.
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Old 03-20-2013, 07:53 AM   #17
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Some companies will calculate the match you should have gotten had you contributed evenly, and put that amount in your account sometime after the end of the year. For mine it came in April or May, so you had to weigh putting your own money in as early as possible vs. the delay in getting all of the match. I wasn't sure if they'd do it, but they still gave me my match for the previous year after I left in March. However, they didn't do anything the next year for that partial year I worked. I don't recall if I was able to max out that full year or not, so it might've been that they saw they put a match in every paycheck and weren't going to match for pay periods I wasn't employed.
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