IRA Question

[Keim]

I have had some unexpected expenses this year. This results in me not being able to fill both spouse and my IRAs out of regular cashflow. I do have enough in taxable to easily fill both. All money in taxable savings has been there over a year.

What are the advantages and disadvantages of moving the money from taxable into the IRA?

Your help is appreciated.

 

[LOL!]

Moving money from taxable to Roth IRA makes all future gains on that money tax-free.

Moving money from taxable to traditional IRA can give you tax deduction today (if traditional IRA is tax deductible), the dividends will be tax-deferred (not so in taxable), and perhaps gains+dividends will be tax-free if converted to Roth IRA at appropriate time of 0% tax-bracket.

Disadvantages: Money withdrawn from IRA early may have a penalty, but that doesn't apply to Roth IRA contributions (only to gains in Roth).

Instead of IRA, how about contributing to 401(k) or 403(b) through your paycheck? Example: Set contribution level to as high as possible so your paycheck is nearly zero. Live off of taxable investments instead.

 

[Bikerdude]

The advantage is the earnings from your after tax savings will be tax deferred once transferred. However, you will not be able to deduct the contribution (subject to IRS income limits) from taxable income as you would if the contribution came from earned income. Of course, you will pay taxes when you withdraw the funds from your Ira in the future.

One possible option is to use your after tax savings to pay expenses and use your earned income to contribute to your IRA and receive the tax break. You could also use your savings to fund a Roth Ira if your tax bracket is low enough.

Take your pick.

 

[Keim]

LOL,

Thanks for the input. Summarizes what I thought, but wasn't positive of. The IRAs are in addition to the 403b we already fill.

I always enjoy your insightful posts.

 

[Keim]

The advantage is the earnings from your after tax savings will be tax deferred once transferred. However, you will not be able to deduct the contribution (subject to IRS income limits) from taxable income as you would if the contribution came from earned income. Of course, you will pay taxes when you withdraw the funds from your Ira in the future.

One possible option is to use your after tax savings to pay expenses and use your earned income to contribute to your IRA and receive the tax break. You could also use your savings to fund a Roth Ira if your tax bracket is low enough.

Take your pick.

I am actually trying to fill one roth ira, and one traditional ira in addition to the 403b. So, the money isn't tax deductible if it comes from my taxable savings? Only if it is from this years earned income. Interesting. I think I will fill both tira and rira half with earned income, and half with taxable savings. Split the difference in gambling what taxes will do in the future...

 

[kaneohe]

The advantage is the earnings from your after tax savings will be tax deferred once transferred. However, you will not be able to deduct the contribution (subject to IRS income limits) from taxable income as you would if the contribution came from earned income. Of course, you will pay taxes when you withdraw the funds from your Ira in the future.

One possible option is to use your after tax savings to pay expenses and use your earned income to contribute to your IRA and receive the tax break. You could also use your savings to fund a Roth Ira if your tax bracket is low enough.

Take your pick.

I'm not sure I agree w/ this. You can fund an IRA as long as you have enough earned income to support the contribution. If you do, then you can deduct the TIRA contribution as long as you are below the IRS limits on income. Whether you contribute to the TIRA directly from your paycheck or from your savings doesn't make a difference........money is money.

 

[Bikerdude]

I'm not sure I agree w/ this. You can fund an IRA as long as you have enough earned income to support the contribution. If you do, then you can deduct the TIRA contribution as long as you are below the IRS limits on income. Whether you contribute to the TIRA directly from your paycheck or from your savings doesn't make a difference........money is money.

I agree. Money is money, its just how its classified for tax purposes.

 

[sheehs1]

I agree. Money is money, its just how its classified for tax purposes.

I agree as well and have done this for several years. I have earned income to support my contributions but have technically moved the money from a brokerage taxable account into my brokerage IRA's. (because I did not want to give the brokerage more "real" money).

Doesn't matter where it moves from as long as you have the earned income to support the contribution.