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10-17-2012, 06:16 AM
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#21
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Posts: 1,994
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Quote:
Originally Posted by Tyro
You may not be able to deduct it, but as I understand it, you can still contribute, and the earnings from that point on are still tax-deferred.
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I do this since I maxed out all of my deferred options.
It is a "Nondeductible IRA". Grows tax deferred just like the other options.
I figured it can still grow for 12 to 15 years before I'm forced to take the minimum withdrawal.
With the catch up it is $6,000 a year.
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10-17-2012, 06:33 AM
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#22
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,328
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Your approach makes sense. The people in charge of this plan would be jailed in a just world.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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10-17-2012, 06:46 AM
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#23
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Quote:
Originally Posted by donheff
Your approach makes sense. The people in charge of this plan would be jailed in a just world.
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I disagree. In a "just world" they would receive a less pleasant fate.
FWIW - Do you know for sure that they fund purchase would actually have to pay the load fee? My current employer has a long list of funds that show loads on their prospectus but the load is not charged to the employee when buying these funds. Of course, these funds also have very high management fees and trading costs. The company for some reason didn't really advertize that the employees didn't pay the load. We do have a S&P500 index fund with no advertized load and low fees. Most plans have added at least one index fund to avoid "breach of fudiciary responsiblility" lawsuits.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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10-17-2012, 07:19 AM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,300
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Quote:
Originally Posted by RunningBum
Any chance of going to HR to get the administrator changed? That actually happened at the last company I worked for. I hadn't been there long when it changed, and what I'd heard is that a number of investment savvy employees had complained about either the choices or fees or both, so the administrator was changed.
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Might work. Though we had three different 401k administrators at the MegaCorp I worked at, and they were all the same, semi-craptastic. But in fairness, even though the administrators suggested/promoted funds that were beneficial to them, they offered lots of other (better) fund options too. It was our clueless 401k committee (largely HR folks who didn't know the first thing about investing) who picked what the administrators suggested not knowing any better.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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10-17-2012, 07:20 AM
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#25
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,566
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Quote:
Originally Posted by photoguy
Does the 401k plan happen to have a money market fund with no load / low ER? That's what I put my money into when I knew I'd be in a crappy plan for a short time.
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This would be my choice as well.
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“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way
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10-17-2012, 07:41 AM
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#26
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Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Mississippi
Posts: 1,894
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Quote:
Originally Posted by sheehs1
I do this since I maxed out all of my deferred options.
It is a "Nondeductible IRA". Grows tax deferred just like the other options.
I figured it can still grow for 12 to 15 years before I'm forced to take the minimum withdrawal.
With the catch up it is $6,000 a year.
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Wouldn't a ROTH be better in this case ?
Roth IRA vs. Nondeductible IRA
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10-17-2012, 08:11 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,239
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Remember that if there is a load... and you plan to put $6000 into the fund.... that is $300 if you put it in a 5% load fund...
So, takes away from the $1,000 (or less if load charged to it)...
Do you want to jump through hoops for say $700 since you are only talking about 1 year
Now, if you can get the money for this year, next and he quit after getting his $1000 in 2014, then that is $2100 and it might be worth doing...
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10-17-2012, 08:50 AM
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#28
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,212
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Photoguy - that was my understanding also - $110k limit for married to have the IRA be deductible.
I can see the benefit of a ROTH... since we'd be paying tax on the principal, regardless. It would be nice to have a tax advantage on withdrawal.
Hubby is 60 - and will retire at 62... so he's got about 15 months left with this company. He can withdraw from his other IRAs anytime... (since he's above 59.5). My reading of the plan documents suggests he can't withdraw from the 401k (other than as a loan) until he separates from the company. No early withdrawals to roll over to an IRA.
The money market fund is also a mere 1% load. Yes - even the money market has a load. So I have him 50% in bonds (for *some* possible upside potential) and 50% in MM - to limit the load costs.)
The max employer match is $1000. As long as you put in at least $1000 of your own money, you get $1000 match.
Since it won't be in the 401k long term (since he's retiring)... I guess this is the safest way to go.
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10-17-2012, 10:49 AM
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#29
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Full time employment: Posting here.
Join Date: Aug 2012
Location: Upstate
Posts: 699
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Quote:
Originally Posted by LakeTravis
I've always wondered about this myself, since we both contribute the max to our 401(k)s and our household income exceeds the amount that would allow us to contribute to individual retirement accounts outside of those company 401(k)s.
But if that limitation is only for "tax deductable" contributions and still allows after-tax dollars to be contributed, is there a maximum of after-tax dollars that can be contributed each year and does it make financial sense to do that instead of putting the money into regular after-tax investment accounts?
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AFAIK, the maximum annual contribution is the same for non-deductible as for deductible (or mixture of both), and you must keep your own records as well as filing form 8606 each year you contribute to a standard IRA. I don't know if you can contribute to both a standard IRA and a Roth IRA; it may be one or the other, and for a non-deductible contribution, I think Roth would be the better choice.
Nondeductible IRA Contributions
IANAL or CPA or tax consultant, etc. This info should be verified on one's own; I'm going from old memory, and things may have changed.
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10-17-2012, 01:40 PM
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#30
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I'd go for just $1k to capture the employer contribution. Put it in whatever costs the least in total loads and fees. You don't want to pay any load when you will be getting out in another year. Put the rest in a Roth or taxable account.
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10-17-2012, 07:48 PM
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#31
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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Quote:
Originally Posted by sheehs1
I do this since I maxed out all of my deferred options.
It is a "Nondeductible IRA". Grows tax deferred just like the other options.
I figured it can still grow for 12 to 15 years before I'm forced to take the minimum withdrawal.
With the catch up it is $6,000 a year.
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Do you have to pay tax on the principal when you withdraw? or is it just on the gains?
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10-17-2012, 08:05 PM
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#32
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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Quote:
Originally Posted by photoguy
My understanding is that if you are covered by a 401k employer plan you are not eligible for the Ira deduction if your income is above a threshold (110k for married)
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Quote:
Originally Posted by Tyro
You may not be able to deduct it, but as I understand it, you can still contribute, and the earnings from that point on are still tax-deferred.
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Quote:
Originally Posted by LakeTravis
I've always wondered about this myself, since we both contribute the max to our 401(k)s and our household income exceeds the amount that would allow us to contribute to individual retirement accounts outside of those company 401(k)s.
But if that limitation is only for "tax deductable" contributions and still allows after-tax dollars to be contributed, is there a maximum of after-tax dollars that can be contributed each year and does it make financial sense to do that instead of putting the money into regular after-tax investment accounts?
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Quote:
Originally Posted by rbmrtn
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You guys are all missing the point among the vocabulary.
There are two kinds of IRAs: the original (traditional, conventional) version and the Roth version. The original version is either deductible or non-deductible.
You might be able to deduct a contribution to a conventional IRA, or your might not be able to deduct a contribution. But either way you'll still be able to make the contribution and start up a conventional IRA.
Once you have the conventional IRA you'll be able to convert it to a Roth IRA. There used to be a limit on AGI income to do the conversion, but that limit went away a couple years ago. Now everyone is scrambling to do the "backdoor Roth IRA" before the loophole is closed.
I'm not aware of any interlock between a 401(k) and an IRA. As far as I know, you can have one or the other or both-- and you can contribute up to the IRS limits.
It's a big deal to military servicemembers because bonus pay & special pay can go in the Thrift Savings Plan. In a combat zone, the IRS limit on TSP contributions balloons up to $50K-- and the pay is tax-free too. Of course, the downside to this "good deal" is that you have to be in a combat zone to be eligible.
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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."
I don't spend much time here— please send a PM.
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10-18-2012, 07:23 AM
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#33
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Recycles dryer sheets
Join Date: Jun 2011
Posts: 185
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Craptastic, what a great word. I was introduced to the word "Craptacular" awhile back and then introduced it at work and it spread like wildfire. Life is so much more rich with dark humor.
I have a small business 401k run thru a local bank. Fees and fund options are not as draconian as described by rodi, but bothersome nonetheless. After probing the administrator of the plan, I found out I can open a brokerage account and I subsequently purchased Vanguard bond ETF's with a modest brokerage fee. This may be an option for you rodi.
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