Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
IRA's for income over $200K
Old 01-06-2006, 09:42 AM   #1
Dryer sheet aficionado
 
Join Date: Nov 2005
Posts: 27
IRA's for income over $200K

Where is the best place to purchase IRA's if your income is over $250K and how much can a married couple invest each year?
I know they are not deductable due to our income* but we have maxed out our 401K plans and many people on this forum say they are a good thing to do.
__________________

__________________
Foodeefish 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: IRA's for income over $200K
Old 01-06-2006, 09:52 AM   #2
Recycles dryer sheets
 
Join Date: Mar 2005
Posts: 75
Re: IRA's for income over $200K

I can only give you my experience. I started a BrownCo IRA a few years ago, but has now been bought out by E-Trade. Are you just going to using Mutual FUnds or tradng stocks and the like ? . If you are doing alot of trading, look for Low fees. (scottstrade maybe?). If you are just parking the money in MF's, set up your IRA with the fund family you like. Some discount brokers let you buy MF's through them, but can be limited on which ones. The adavantage of non deductible IRA is the tax free compounding, (hopefully), of your assests. THe 'tax efficiency' of a transaction is taken out of the equation.

Christopher
__________________

__________________
Chris24 is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 11:01 AM   #3
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,804
Re: IRA's for income over $200K

Quote:
Originally Posted by Foodeefish
Where is the best place to purchase IRA's if your income is over $250K and how much can a married couple invest each year?
I know they are not deductable due to our income* but we have maxed out our 401K plans and many people on this forum say they are a good thing to do.
It is a nice problem to have.

You can also look at Vanguard; lower rates than most and with your income and contributions you would qualify for better rates for high balance accounts.
__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 01:42 PM   #4
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,211
Re: IRA's for income over $200K

Quote:
Originally Posted by Foodeefish
Where is the best place to purchase IRA's if your income is over $250K and how much can a married couple invest each year?
I know they are not deductable due to our income but we have maxed out our 401K plans and many people on this forum say they are a good thing to do.
IRA contribution limits for 2005 and 2006 is $4000 per person. If over 50, catch up is $500 for 2005 and $1000 for 2006. As you mentioned, you will have to use post tax dollars and you can't use ROTH because your income is too high.

I am not sure the non-deductible IRA is the best idea for those in upper tax brackets. My personal feeling is to invest in a tax efficient manner in non-IRA accounts after maxing out 401(k)s. But who knows.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 02:15 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 6,386
Re: IRA's for income over $200K

Quote:
Originally Posted by Martha
I am not sure the non-deductible IRA is the best idea for those in upper tax brackets.* My personal feeling is to invest in a tax efficient manner in non-IRA accounts after maxing out 401(k)s.* * But who knows.
I will be more forthright. You should not be contributing to a non-deductible traditional IRA. There are many reasons why investing in a tax efficient manner in an after-tax (i.e. non-IRA) account after maxing out 401(k)s is better.

1. Gains in the non-deductible IRA are taxed at your marginal income tax rate when you withdraw them, while gains in the after-tax account are taxed at the capital gains tax rate.
2. In general, you cannot withdraw funds from the IRA before age 59 1/2 without a penalty, while you there are no restrictions on investment in an after-tax account.
3. If you die before using your funds, your heirs will pay income taxes on your IRA money while your after-tax accounts get a stepped-up basis and are tax-free to your heirs.


I'd like to know who said a non-deductible traditional IRA was good thing to do.

Also, don't forget if you will be 50 years old on Dec 31, 2006 that you can put $20,000 into your 401(k) plan this year.
__________________
LOL! is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 05:23 PM   #6
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,375
Re: IRA's for income over $200K

Quote:
Originally Posted by LOL!
I will be more forthright.* You should not be contributing to a non-deductible traditional IRA.* There are many reasons why investing in a tax efficient manner in an after-tax (i.e. non-IRA) account after maxing out 401(k)s is better.
Gotta do the math. Every lifetime of earnings is different and your individual situation may run counter to the conventional wisdom.

Spouse and I had several years when we couldn't contribute to Roths, but we kept making non-deductible contributions to a conventional IRA. The TSP didn't come to the military until very late in the game (for me anyway) so the rest went into taxable accounts.

Now in ER, with income in the 10-15% bracket, we're converting the IRAs to Roths a little each year. We wouldn't be able to do that (and to wipe out the tax basis) if we hadn't been making non-deductible contributions all those years. When spouse's pension starts up in 15 years we'll be in a higher tax bracket, but we'll still be below the tax brackets of the '80s & '90s.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 05:40 PM   #7
Recycles dryer sheets
 
Join Date: Aug 2003
Posts: 470
Re: IRA's for income over $200K

I'll take up the defense of non-deductible traditional IRA (since I put some of my own money there).

First of all, I would only recommend a non-deductible IRA if you don't qualify for a Roth, you max out your 401k, and you already save substantially in non-tax sheltered accounts. *Some reasons why you may want to use a non-deductible IRA:

1. you plan on having a lower income soon that would allow you to convert to a Roth (virtually for free if you don't have substantial gains)
2. you want to invest in income producing assets (such as bonds)
3. you plan on having a low enough income when you withdraw that having taxable income won't matter much
4. you like to trade stocks / funds or invest in actively managed mutual funds (which aren't tax-efficient) so you won't get the long term gains rates or tax-free compounding of deferring taxable gains
5. you plan on investing long enough that the tax deferral will make up for a higher one-time tax rate
6. your tax rate for capital gains is much higher than 15% (mine, for example, is 33.5%) due to state taxes, loss of credits / deductions / exemptions, AMT etc.

As for accounts, I've been very happy with BrownCo and Vanguard.
__________________
bongo2 is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 05:58 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: IRA's for income over $200K

Quote:
Originally Posted by Nords
* When spouse's pension starts up in 15 years we'll be in a higher tax bracket, but we'll still be below the tax brackets of the '80s & '90s.
I've been asked if it does not get monotonous to have all of the answers
and be right all of the time. *My answer is *"No, it's not."

This should be "if" spouse's pension starts up. *It's all an "if" folks.

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 07:04 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 6,386
Re: IRA's for income over $200K

OK, I confess I have a little money in a non-deductible IRA.* *I have found it a nuisance.

Some of the counter arguments by bongo2 and nords do not make sense to me.* Examples:
bongo2's point #4, I used my non-deductible IRA to trade stocks.* I lost money that I can not easily take a tax loss on.
bongo2's point #5, both the non-deductible IRA and investing in a tax-managed way (i.e. no capital gains until you sell) have tax deferral.
bongo2's point #6 about the capital gains tax rate being 33.5% might be true, but is unlikely to be true when retired and selling stock to realize capital gains.

If you are in the 10-15% tax bracket in retirement, then the capital gains tax rate is 5%.* I'm not sure if it is still true that long term capital gains tax rate will go to 0% in 2008 for low income folks. Sure Congress can change the law, but it can change the law on Roth conversions, too.

I'm not sure about IRAs being off-limits to creditors.* If they are, that would be an advantage for the IRA.
__________________
LOL! is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 07:10 PM   #10
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,375
Re: IRA's for income over $200K

Quote:
Originally Posted by MRGALT2U
This should be "if" spouse's pension starts up. It's all an "if" folks.
Sure, but it's better to plan for taxes as if that pension was going to happen. We'll need at least six of the next 15 years to finish the conversion. Either way we'll be, at a minimum, ahead of the tax brackets and we won't have to worry about RMDs.

Thanks for the considerate thought, JG, but it can be "if", "when", or "whatever". Unlike you my ER does not depend on the income or the pension of my spouse.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 08:10 PM   #11
Dryer sheet aficionado
 
Join Date: Nov 2005
Posts: 27
Re: IRA's for income over $200K

Thanks everyone for the insight. I am trying to figure out if you have maxed out your 401K plans, gross over $250K, have no children and* owe $140K on a $256K loan at 4.75% interest, (8 years left) where to put extra money.

We are in the 33% tax bracket and* the house is worth conservatively $750K. I am 44 and my wife is 52 and together the 401K plans have $600K in them.

Where should we put any extra money so we don't give it to Uncle Sam?

__________________
Foodeefish is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-06-2006, 08:34 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 6,386
Re: IRA's for income over $200K

Why not just keep fulfilling your asset allocation plan?* You have such a plan already, right?

If not, then
http://www.fundadvice.com/FEhtml/BHS...108/0108a.html
http://www.radicalguides.com/2005/06...dical_gui.html
might be places to start some reading.
__________________
LOL! is offline   Reply With Quote
Re: IRA's for income over $200K
Old 01-07-2006, 10:21 AM   #13
Thinks s/he gets paid by the post
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 4,538
Re: IRA's for income over $200K

I'd look at the 4.75% rate on your mortgage as your "investment hurdle rate". As long as you think you can earn more than 4.75% before tax on alternative investments (which shouldn't be too hard) I'd leave the mortgage alone.

Do you have taxable accounts too? From your posts it seems as if a lot of your wealth is tied up in real estate and 401(k)s which may limit your financial flexibility. Having unrestricted access to a pool of money may be worth more than the tax deferral.

You should also consider how you plan to invest that money. If you are investing in bonds the tax savings on $8K / year over 10 years is going be around $3k-$5k at your current tax rate (and assuming a 15%-25% post retirement tax rate). Those savings will compound as you leave the money tax sheltered. But if you were to invest in the S&P 500 the tax savings would be far less (about $1,000) and could even be negative if the preferential treatment on capital gains and dividends is extended.
__________________

__________________
Retired early, traveling perpetually.
(find more details on my "About Me" page).
Gone4Good is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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
Tax Question concerning IRA's riskadverse FIRE and Money 12 04-07-2007 11:22 AM
the first $200K is the hardest to save??? cons Young Dreamers 21 09-09-2005 01:15 AM
Contributing to Roth IRAs while one of couple is FIRE'd LOL! FIRE and Money 4 06-26-2005 02:04 PM
Creditors May Not Sieze IRAs Berkshire_Bull FIRE and Money 20 04-06-2005 04:55 AM
Last Minute IRAs for 2004 Martha FIRE and Money 2 04-04-2005 06:06 AM

 

 
All times are GMT -6. The time now is 03:29 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Early Retirement News right to your Email!

Stay up-to-date with all the latest news to your inbox!

unsusbcribe at anytime with one click

Close [X]