Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Traditional IRA query
Old 08-26-2014, 11:45 AM   #1
Dryer sheet aficionado
 
Join Date: Jun 2014
Posts: 41
Traditional IRA query

Hi group: In a nutshell, we're 5 yrs from FIRE and now that all 3 kids are gone we're focusing on consolidating investments & more specifically building up the after tax IRA's and other savings. The query; the DW opened a few traditional after tax IRA's 8-10 years ago and has been plopping a fix amount each year into them. As I was looking to consolidate I realized that our AGI is such we don't qualify for a tax deduction on contributions; have to check our previous tax returns, not sure what our preparer did on those. Anyhow, assuming we continue to put funds into these IRA's knowing there's no deduction and any gains will be taxed as "income tax" at withdraw time, does it make sense to instead open another investment account (non-IRA qualified) and play the game at withdraw of capital gains rate (15% now) verse income tax rate, it's possible they may be the same, who knows. Do not qualify for ROTH and back door conversion doesn't make sense for us tax wise now. Any insights on whether I'm missing something is greatly appreciated. Need to build these after tax accts.......
__________________

__________________
gregory r. 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!

Old 08-26-2014, 12:45 PM   #2
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
Not quite enough information to make a call on all points, but I'll ramble a bit, and you can come back with more details.

Take a look at your most recent 8606. That will tell you what fraction of your traditional IRA you will need to pay taxes on when you withdraw from it. Basically since you've already paid tax on the originally deposited IRA funds, that won't be taxed again, but yes, you'll be taxed some when you withdraw from it. The question is at what rate.

Whether to use the IRA might come down to whether your current marginal tax rate is higher or lower now than it will be when you pull money out. The "old thinking" was to always defer paying taxes, but now there's a lot of talk about how now might represent lower taxes than in the future.

Since you don't qualify for Roth accounts, that makes me think you have quite a bit of income? That might also mean that once you retire, you'll be spending a lot per year to keep your current lifestyle? If most of that lifestyle spending will be from after-tax funds (in other words, you have mostly after tax savings and only a small bit of tax deferred assets), then the amount you pull from deferred will be small, and you might be in a lower marginal bracket.
__________________

__________________
sengsational is offline   Reply With Quote
Old 08-26-2014, 01:08 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Once you've maxed out your tax advantaged options, you're stuck with using the taxable account. Nothing wrong with that.
__________________
Animorph is offline   Reply With Quote
Old 08-26-2014, 02:13 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
I would prefer taxable account to a non-deductible IRA since the taxable account is much more flexible and get preferential tax rates especially when you are in retirement if your income is low.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
a bit more info
Old 08-26-2014, 03:09 PM   #5
Dryer sheet aficionado
 
Join Date: Jun 2014
Posts: 41
a bit more info

Actually about 80% of our portfolio is in tax deferred accounts, hence the need to beef up some after tax holdings. Collective income of 275k but AGI still disqualifies for the Roth and to do a conversion on some part I believe would not benefit us from a tax standpoint now. 33% bracket now however, home will be paid for before FIRE and our extracurricular activities are not cash sucking.......hoping to live within the 25% tax bracket or less, which in today's capital gains rate would be 15%....no crystal ball though...just trying minimize the gains tax once we FIRE
__________________
gregory r. is offline   Reply With Quote
Old 08-26-2014, 03:09 PM   #6
Dryer sheet aficionado
 
Join Date: Jun 2014
Posts: 41
And thanks for the input to all!!!
__________________
gregory r. is offline   Reply With Quote
Old 08-26-2014, 03:44 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,362
As sengsational mentioned, review your 8606 to find out how much of your tIRA is taxable. If you've been adding after-tax money to the tIRA the pre-tax portion may be small. In that case, converting it to Roth will not cost you much in tax now, plus you'll be converting what would have been future taxable gains into tax free ones.

About 25% of our tIRA was from after-tax contribs, thus that portion had no tax due upon conversion to Roth. We converted the whole thing to Roth back in 2010. Since then its value has roughly doubled, gains that would have been taxed as ordinary income but instead are tax free thanks to Roth.
__________________
GrayHare is offline   Reply With Quote
Old 08-26-2014, 03:52 PM   #8
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
As tax laws change and more goodies are means tested with things like MAGI for the ACA, I think it will be more important than ever to diversify your investments into regular taxable, traditional tax-deferred and Roth-style investments. This allows you to have maximum flexibility over reportable income in order to keep your MAGI lower when necessary, and to "use up" as much of the lower tax rates as you can before switching to tax-free income when you're about to go to a higher bracket.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 08-26-2014, 04:56 PM   #9
Moderator
MBAustin's Avatar
 
Join Date: Jul 2010
Posts: 4,152
Quote:
Originally Posted by pb4uski View Post
I would prefer taxable account to a non-deductible IRA since the taxable account is much more flexible and get preferential tax rates especially when you are in retirement if your income is low.
+1

We make some of our charitable donations from taxable accounts - if you are the charitable sort you could also put money into a donor advised fund now and get the tax deduction while you are in the high bracket, then give it to the charities later when the deduction is worth less to you. Just a thought.
__________________
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." William Feather
----------------------------------
ER'd Oct. 2010 at 53. Life is good.
MBAustin is offline   Reply With Quote
Old 08-26-2014, 05:36 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Quote:
Originally Posted by GrayHare;



About 25% of our tIRA was from after-tax contribs, thus that portion had no tax due upon conversion to Roth. We converted the whole thing to Roth back in 2010. Since then its value has roughly doubled, gains that would have been taxed as ordinary income but instead are tax free thanks to Roth.

Did you do the math? Was this actually a smart financial move?



Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 08-27-2014, 07:48 AM   #11
Dryer sheet aficionado
 
Join Date: Jun 2014
Posts: 41
I will check the 8606......Will also double check the value of the ROTH conversion...thanks to all for the feed back....
__________________

__________________
gregory r. 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
Traditional after-tax IRA -> Roth IRA conversion easy? wanaberetiree FIRE and Money 3 09-16-2013 09:10 AM
Converting Traditional IRA to Roth IRA piranha Young Dreamers 4 04-14-2007 08:39 AM
SEP IRA, WHAT ARE DIFFERENCES FROM TRADITIONAL IRA? fire2china FIRE and Money 1 02-05-2007 08:38 PM
Help! SEP IRA was transferred into a Traditional IRA...bad? soupcxan FIRE and Money 5 12-19-2006 12:19 PM
Contributing to Roth IRA and Traditional IRA mrinvest Young Dreamers 18 11-22-2006 11:45 AM

 

 
All times are GMT -6. The time now is 12:21 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.