Really frustrated with my IRA

[early_retirement_or_bust]

Hi guys, I am really lost on this...I've tried doing the research, and I talked to my roboinvestor (Wealthfront), and I am done with them. I don't feel as though they have the insight/experience to guide me through retirement...they sound as young/inexperienced as me every time I get on the phone with them.

Here are my concerns:

1) I believe I want to do a Roth IRA. I thought it would make sense to pay upfront now than later on down the line when tax rates are higher. Is this sound thinking? Also, I anticipate making way more than the $50k I currently make when I near retirement.
2) Only my post-tax dollars are going toward this IRA anyway...my only pre-tax dollars are in my 401(k).
3) The tax benefit for my income taxes only helps me out with a few bucks...I don't notice any substantial difference.
4) Wealthfront suggested I get a tax advisor, but this is not in my budget at all. Is there any way I could calculate the tax I would pay if I converted to a Roth? We're only talking about a mere $9k here (once I rollover another account with it).

Thanks for any knowledge you all can impart. I'm just frustrated because now I'm serious about my retirement and I can't afford to just make any choice that's best for me (what Wealthfront advised) when I am not knowledgeable enough yet to make the best choices in general.

[kgtest]

Roth IRA make sense. I would say start out by contributing to your 401k max, followed by a Roth IRA max contribution, followed by an HSA max contribution. I usually put any "windfalls" into the ROTH IRA and keep my IRA at a set/fixed % allocation each paycheck. When I get a bonus goes to Roth, when I get extra money, goes to roth.


You can always convert to a Roth IRA in lower earning years if you want to diversify and limit your tax liabilities.

[jazz4cash]

It sounds like you would be a good candidate for a Roth conversion. If the IRA has post tax contributions, it will reduce the amount of taxes you have to pay (if any) to convert to a Roth. Have you tried asking whoever has your IRA currently? You could also google "Roth Conversion Calculator". I know Schwab has a tool for this and many others do as well.

[hnzw_rui]

You're planning to get married, right? What will be your filing status for 2015?

Assuming you're not getting married this year and can claim head of household (with baby as dependent), I think it's a pretty good idea to convert now. Chances are you'll be in the 15% bracket.

Standard Deduction: $9250
Exemption: $4000*2 = $8000
Taxable Income 15% upper limit: $50200
AGI 15% upper limit: $67450

As for additional taxes due to conversion, estimate 15% of $9K for federal income tax so around $1350 additional. That's just an educated guess, though. Best to run your numbers through TurboTax for a more accurate estimate.

Disclaimer: I'm not a tax professional and these figures are just guesses based on the numbers you've given. I cannot be held liable for any actions taken resulting from above.

Wealthfront is an automated investment advisor. Unfortunately, I don't think they're qualified to give tax advice. For that matter, neither are we. The suggestion to see a tax advisor is just prudent particularly given today's litigious society.

I do recommend you take the time to study your 1040 and maybe try to do some mock tax returns by hand. Also, read the instructions and various publications. The US tax code is a complex beast. Be prepared to do lots of reading if you don't wish to consult a tax professional.

[target2019]

Having a small IRA is not a substantial hindrance. Each year you have a choice whether to put some or all of a deductible contribution there. It's limited by your access to 401k as well as your AGI, as has been pointed out.

If you lose or switch jobs, then you put preTax contributions into the IRA. Or put after tax contributions in your Roth IRA.

Investment companies do not give tax advice.

[hnzw_rui]

Quote:

Originally Posted by sheehs1 From reading your post it doesn't sound like you are doing Roth Conversions out of your 401k, right? It sounds like you want to do a Roth in addition to what your are contributing to your 401K.

From OP's post, it seems like she currently has $9K in traditional IRA that she wants to convert to Roth and was asking how much the tax liability will be.

[sheehs1]

You are right hnzw. I deleted my post.

[38Chevy454]

I think at your tax rate, contributing to Roth makes good sense. If your pay increases, then the pre-tax advantage is higher. But for now, not as much tax advantage as compared to the tremendous tax benefits later when you take it out.

Not sure if your employer has match on 401k, if so at least put the minimum you need to get the full employer match amount. That is free money right there, and foolish to not take full advantage of that. Example, if they match 50% up to 4% max, then put in your 8% and get the matching 4%, you have instantly got a 50% return on your money, before the magic of compounding over time. If no employer match, then consider no 401k pre-tax and do all you can to after-tax Roth IRA instead. At least evaluate the potential for this, and in future years as your salary increases and tax rate becomes a factor you can transition to 401K pre-tax.

As for the conversion, that is a one-time hit. Most of my comments above were more directed at your regular IRA contributions.

[GrayHare]

Quote:

Originally Posted by early_retirement_or_bust 2) Only my post-tax dollars are going toward this IRA anyway...my only pre-tax dollars are in my 401(k). 3) The tax benefit for my income taxes only helps me out with a few bucks...I don't notice any substantial difference.

If your all your tIRA contribs are post-tax dollars i.e. non-deductible, you should see $0 difference in income taxes due to those tIRA contribs, not "a few bucks". Given your conflicting statements, there may be a gap in your understanding of the tax implications of an IRA.

If all your tIRAs are post-tax dollars (no pre-tax contribs and no earnings, which I doubt is the case) then converting it to Roth will cost you $0 in taxes, regardless of whether you convert $9 thousand or $9 million.

[Mulligan]

Quote:

Originally Posted by kgtest Roth IRA make sense. I would say start out by contributing to your 401k max, followed by a Roth IRA max contribution, followed by an HSA max contribution. I usually put any "windfalls" into the ROTH IRA and keep my IRA at a set/fixed % allocation each paycheck. When I get a bonus goes to Roth, when I get extra money, goes to roth. You can always convert to a Roth IRA in lower earning years if you want to diversify and limit your tax liabilities.

OP, like KG posted, if you are healthy and have access to one do not disrespect the idea of funding that HSA and investing it when the math works for it. A potential triple tax break, that the other 2 cannot offer.


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