IRA Question

[ijuba]

While this scenario makes sense to me - I'd like to run it by you for any feedback.

When Fire'd - is it prudent to take the maximum allowable out of "taxable" account for DW and I - and put it into our respective IRA's each year?.

While it seems a no brainer to delay any taxes on capgains and distributions for any investment we have; I just wanted to make sure I wasn't missing something.

 

[cute fuzzy bunny]

Well, you need earned income to do that, and you can offset that earned income by putting the money in an IRA...but you're likely to be offsetting a fairly low tax rate by doing that and then you'll pay taxes on the distributions as you withdraw from the ira.

In that scenario, I'd find a way to generate enough earned income to contribute to a Roth IRA and withdraw the money without taxes.

My method was having my wife work a couple of days a week

 

[mickeyd]

When Fire'd - is it prudent to take the maximum allowable out of "taxable" account for DW and I - and put it into our respective IRA's each year?.

Not exactly sure what you are asking. If you are retired and have no earned income you would not be eligible to contribute to an IRA as it requires EI in order to qualify for an IRA. Another thing, as you will probably be taping your IRA stash NLT age 70 1/2, you would only be deferring taxes for a few years (I am assuming that you are in your 60s).

 

[OAG]

Profile says 49 years old -- 21 years to go to RMD's. Still does not change the need for EI--Maybe part-time work and ROTH?

 

[sgeeeee]

You really need more information to make a decision. Do you expect to have earned income in retirement? How large are your retirement accounts and non-deferred accounts? Some folks have such large retirement account balances that they look for ways to reduce them prior to the onset of required minimum distributions (RMD) and the corresponding tax implications of them.

 

[ijuba]

Thanks for the responses folks. I certainly must confess I was glad to get out of Accounting 201.

I believe realized capital gains, interest and dividends on any investments held in a taxable account is "earned income" regardless of wages? No?

I'd like to reduce any future taxable gains in this taxable account by transfering the max allowable into my IRA.

As it was pointed out, I have a few years to go until necessary to take distributions from the IRA. Deferring the taxes would be beneficial if believe. Just thought I would throw it out there for some validation.

 

[jdw_fire]

I believe realized capital gains, interest and dividends on any investments held in a taxable account is "earned income" regardless of wages? No?

No, "capital gains, interest and dividends on any investments held in a taxable account" are not "earned income".

 

[OAG]

Generally, earned income, is listed on line 7 of your tax return (1040 or 1040A). Interest, and Dividends do not go on line 7.

 

[ijuba]

Thanks guys - I knew I should have stuck around for Accounting 301

I made the IRA contribution last year ('05) when wages were present. They will be present for '06 also so I get one more year to apply a contribution to the IRA.

Certainly, it's not worth going back to work for in the future though!