WWYD- Husbands craptastic 401k plan

[rbmrtn]

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.

Wouldn't a ROTH be better in this case ?

Roth IRA vs. Nondeductible IRA

 

[Texas Proud]

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...

 

[rodi]

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.

 

[Tyro]

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?

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.

 

[Animorph]

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.

 

[photoguy]

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.

Do you have to pay tax on the principal when you withdraw? or is it just on the gains?

 

[Nords]

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)

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.

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?

Wouldn't a ROTH be better in this case ?
Roth IRA vs. Nondeductible IRA

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.

 

[BigE]

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.