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FateFree posted:So to save for retirement, I've done my best to max out my 401k plan for the past several years. My 401k has about $110k in it. To max out my contribution I've been putting in 14% of every paycheck (salary at $119k), and thats that. This doesn't make any sense, you can contribute up to the 17.5k 401k limit no matter what your income is. You need to have a chat with your HR folks.
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Aug 22, 2014 13:44
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Oscar Statue posted:This doesn't make any sense, you can contribute up to the 17.5k 401k limit no matter what your income is. You need to have a chat with your HR folks. Not true. There is a provision to limit contributions by "highly compensated employees", intended to make sure that 401ks aren't setup to unfairly benefit the people at the top of the company. You can read more about the conditions here: http://www.401khelpcenter.com/mpower/feature_030702.html#.U_dArdm9LCQ
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Aug 22, 2014 14:09
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So, with this discussion of Roth IRAs, I suddenly realized I might have screwed up. I make well under the phase-out for roth ira contributions so I've been maxing it out, but this year I received an inheritance as a beneficiary on a pension fund, that it just occurred to me puts me over the limit (probably still within the phase-in). Since this is from a pre-tax pension fund, it's taxable income, so it counts as part of my AGI right? It sounds like I'll have to figure out exactly how much I'm over and potentially withdraw some or all of this year's contributions.
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Aug 22, 2014 14:48
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Steampunk Hitler posted:I'm not sure if this is the correct thread or not since it's not retirements savings... But I'm looking to put away money in case my daughter goes to college (She's currently 13 and just started 8th grade). I'm wondering if a 529 plan from Vanguard is a bad idea? Just went through this myself, you have to go through a state sponsored plan, and there are a ton of options since you can select from any state. From what I could find, unless the state you are in offers some great incentives (I'm in Nevada, not the case here), I'd go with Utah's 592. Some are branded Vanguard 529s, but I couldn't find any that bettered Utah's from a minimum and fee standpoint. Utah's 529 isn't a "Vanguard" 529 like one Nevada offers, but that's still the funds they offer at actual low fees. Other 529s like to add lots of fees on top of the funds, even if it's a low cost Vanguard one. All the other Vanguard options I could find all had high minimums to start or higher fees. Like I said, some states offer great incentives to residents, but since mine was just waiving fees on a very mediocre account selection, I just went with Utah. Fees low, fund balances very well thought out. Even has emerging and developed funds for it's international exposure, which is very awesome for a 529. With a lot of other 529s I found the fund selection and balances to be poorly thought out or downright bad.
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Aug 22, 2014 15:32
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e:  masturbatory fantasy ahead, read next two posts for why this is wrong.For the guy who's making bank and wants to continue to contribute to his Roth (instead of a traditional) IRA: I think it'd be pretty smart to contribute to a traditional IRA, especially if you have monster money already in your Roth. Consider: You're currently taxed at a high rate because you make so much money. This is a good thing, because it means you have a lot of money. The money you want to put into Roth will be taxed at this high rate and will probably be a drop in the bucket compared to your total Roth amount. Once you start getting distributions, it's tax free, which is rad, and why you're doing the whole Roth thing in the first place. However, if you've been smart with contributing to tax-free retirement investments (Roth IRA and Roth 401k) and have the majority of your assets in those vehicles, then your current retirement-age distribution taxable income is pretty close to zero (-- make sure this is the case; pensions? Social Security?). Pumping a traditional IRA would be a good idea because you'd be able to dodge currently high income tax rates for a future very low income tax rate. Even if you aggressively grow your pre-tax retirement funds to the point where you're withdrawing 50k/yr, it'll still be more efficient than being taxed at 120k today. ...maybe. Going off of http://en.m.wikipedia.org/wiki/Income_tax_in_the_United_States tax brackets, it looks like you'll want to stay underneath 36k (filing single or individually) taxable income to reap income tax rewards. If you're close to retirement and have little in the way of taxable income that's still a considerable ceiling. I mean, 10% pretax of 120k is 12k, 10% post-tax of 120k is 8.64k. ~4000 dollars of additional compounding is considerable. There's real calculus to be done here, but the principles of "Roth if you're young, relatively poor, and planning on investing into a huge retirement; Traditional if you're rich, closer to retirement, and have low taxable retirement income" hold true. Just something to consider. DNK fucked around with this message at 16:03 on Aug 22, 2014 |
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Aug 22, 2014 15:40
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I thought traditional IRA income limits cut off even lower, like at 70k or something?
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Aug 22, 2014 15:51
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SlightlyMadman posted:I thought traditional IRA income limits cut off even lower, like at 70k or something? I check this. You're wrong, technically, but still right in some sense... You made me write all those words for nothing  . Your IRA contribution limits for both Traditional and Roth are shared, and are set at 5500/6500http://www.irs.gov/Retirement-Plans...nt-Plan-at-Work However, the contributions to traditional aren't tax deductible past an AGI of 70k (which the example solidly passes). Whoops. Well, it was a fun thought, in theory. DNK fucked around with this message at 16:03 on Aug 22, 2014 |
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Aug 22, 2014 16:01
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DNK posted:However, the contributions to traditional aren't tax deductible past an AGI of 70k (which the example solidly passes). Whoops. Well, it was a fun thought, in theory. Coincidentally, this is also the part that makes the back-door Roth IRA a real thing!  Contribute to a non-deductible Trad IRA at any income level. Convert to a Roth IRA and pay taxes on "earnings" (lol like 80 cents because you probably waited a week?). The more you know.
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Aug 22, 2014 16:08
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Oh ok, this probably applies to my situation as well then. If I take my roth ira contributions for the year back out (which it seems like I'll be forced to do by tax-time or pay a penalty), I can contribute them into a traditional ira, post-tax, then backdoor them into the roth later?
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Aug 22, 2014 16:26
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SlightlyMadman posted:Oh ok, this probably applies to my situation as well then. If I take my roth ira contributions for the year back out (which it seems like I'll be forced to do by tax-time or pay a penalty), I can contribute them into a traditional ira, post-tax, then backdoor them into the roth later? I believe so but I had to look up, "taking ira contributions out and putting them back in" on Google because the $5,500 is a hard limit and I wasn't sure if it counted against you that you already contributed money. First link I clicked, it seems that you can re-invest up to your limit for the year if you take it out that same year but don't trust me on this, I literally did 2 minutes of google searching. But yes, the way to get around the Roth IRA income limits is to backdoor via post-tax Trad IRA contributions.
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Aug 22, 2014 16:31
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ExtrudeAlongCurve posted:Coincidentally, this is also the part that makes the back-door Roth IRA a real thing! I just did this a couple weeks ago. Stuffed $5500 into my Trad IRA then backdoored it into my Roth. I ended up with a $20 capital loss between the 2 transfers 
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Aug 22, 2014 16:36
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And anything taxable counts in your AGI, right? It seems weird that a death benefit would count against me, but the more I look into it, it sounds like income is income.
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Aug 22, 2014 19:21
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This seems like a pertinent question to BFC folk in light of our recent conversations: How can one reduce their taxable income even when it starts pushing six digits? Does that reduction of taxable income "snowball" in any way? (Can you reduce your taxable income to a point where you can then, say, get further tax-deductions on your Traditional IRA deposits because other deductions brought you low enough?)
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Aug 22, 2014 19:25
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Easiest way is to max your 401k contribution and max your HSA contribution if applicable. Those two things together reduce your AGI by $20,800. After that I don't know how much you can do without itemizing, which would also require that your deductions be greater than the standard deduction ($6200 if single). If you're single, not a homeowner, and not running a business it's unlikely that you can itemize deductions greater than the standard deduction IME. Maybe a 529 if you need to save for educational expenses. And I know FSAs are a thing but I'm not terribly familiar with them and they seem kind of "meh". I guess there are other things like tax loss harvesting if you have investments in a taxable brokerage that are in the red, but I don't know that that really counts in this context (and is unreliable, plus it means you're losing money on investments).
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Aug 22, 2014 19:33
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Guinness posted:Easiest way is to max your 401k contribution and max your HSA contribution if applicable. Those two things together reduce your AGI by $20,800. Your deductions don't count for AGI purposes though, right?
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Aug 22, 2014 19:34
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SlightlyMadman posted:Your deductions don't count for AGI purposes though, right? Oh, yeah, right, difference between above the line and below the line.
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Aug 22, 2014 19:35
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SlightlyMadman posted:Oh ok, this probably applies to my situation as well then. If I take my roth ira contributions for the year back out (which it seems like I'll be forced to do by tax-time or pay a penalty), I can contribute them into a traditional ira, post-tax, then backdoor them into the roth later? The big catch is that you can't already have pre-tax IRAs around, otherwise when you convert to Roth it will be like converting part of the pre-tax one as well, which will trigger taxes. You can't specify that you are only converting the after-tax part. It is all considered the same. No current traditional IRA means no problem though.
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Aug 22, 2014 19:37
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I forgot about my HSA though, thanks for that reminder! If I'm crunching my numbers right, I think my AGI will only be in the area of 115k, so I might actually be able to at least hit the phase-out. I'd been doing monthly vanguard contributions and am at 3600 for the year, so I think I'll just stop that now. Once the year is over and I can pull the real numbers, I can still backfill some 2014 roth ira contributions in early 2015 right?
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Aug 22, 2014 19:38
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Guinness posted:Easiest way is to max your 401k contribution and max your HSA contribution if applicable. Those two things together reduce your AGI by $20,800. 529s typically aren't deductible on a Federal level, but some states do give deductions from state taxes for 529 contributions. For instance, in New York, $10,000/year in 529 contributions are deductible from state taxes. And don't forget about charitable giving. That can get you over the line into itemizing or further reduce your taxable income if you are already itemizing. Plus the whole giving back thing. Edit: And yeah, that's obviously below the line stuff.
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Aug 22, 2014 19:38
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DNK posted:This seems like a pertinent question to BFC folk in light of our recent conversations:
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Aug 22, 2014 20:41
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Bob Mundon posted:Just went through this myself, you have to go through a state sponsored plan, and there are a ton of options since you can select from any state. From what I could find, unless the state you are in offers some great incentives (I'm in Nevada, not the case here), I'd go with Utah's 592. Some are branded Vanguard 529s, but I couldn't find any that bettered Utah's from a minimum and fee standpoint. Utah's 529 isn't a "Vanguard" 529 like one Nevada offers, but that's still the funds they offer at actual low fees. Other 529s like to add lots of fees on top of the funds, even if it's a low cost Vanguard one. All the other Vanguard options I could find all had high minimums to start or higher fees. I'm in Pennsylvania, which as I understand it is one of the few states that gives the tax benefits (~26k deduction for each spouse, assuming both made at least 13k each) even for out of state plans. So I guess this sounds like a good option!
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Aug 23, 2014 00:04
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I'm 50 and make a decent 6 figure income where I have managed to save about 600k into my 401k. I currently invest 16% of my base into my 401k. My wife, 12 years younger, is currently working for the Feds (government). But I wouldn't expect her to work to retirement because we have stuff to do after I retire in 6-12 years. Our only debt is a car payment and our mortgage which total around 1000 a month. We are going to save an additional 12k a year into an index fund. I was wondering if it should be In a Roth or traditional IRA?
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Aug 23, 2014 00:28
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Steampunk Hitler posted:I'm in Pennsylvania, which as I understand it is one of the few states that gives the tax benefits (~26k deduction for each spouse, assuming both made at least 13k each) even for out of state plans. So I guess this sounds like a good option! Good to hear. Pretty bummed here since it was just that they waived a hilariously high fee on one of their crappy plans here. Thanks but no thanks. I would think since Nevada also offers a branded Vanguard fund it might be good here, but didn't really work out as well. Fortunately I couldn't be more pleased with Utah's, the only downside is it only makes me wish my 401k options were as good.
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Aug 23, 2014 01:10
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SlightlyMadman are you sure your inheritance is taxable, for you? Normally there's like a $5M exemption before inheritances become taxable. I understand the money is coming from a pension or whatever that would have counted as income for your deceased relative, but if that's the case, shouldn't her estate be paying that tax, and then you get the inheritance tax free? I'm no tax person though. I think given the complexity of your situation you should probably consult a CPA or tax lawyer or something.
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Aug 23, 2014 01:32
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Leperflesh posted:SlightlyMadman are you sure your inheritance is taxable, for you? Normally there's like a $5M exemption before inheritances become taxable. You're correct, it's from a pension, so it has to be taxed (the fund actually took taxes out when they cut me the check). I'm not sure what you mean though, that her estate should pay the tax? I'm listed as a beneficiary on the pension fund, so they sent me a check. There's no estate or anything like that.
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Aug 23, 2014 01:42
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Oscar Statue posted:This doesn't make any sense, you can contribute up to the 17.5k 401k limit no matter what your income is. You need to have a chat with your HR folks. 1) Prove that low income employees are contributing at the same %rate as high income employees, 2) Use an approved 'untested' plan, or 3) Limit contributions from high income employees. Option 1) is a ton of work for HR/Accounting. Option 2) is what most companies opt for. Option 3) is the 'gently caress it' option.
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Aug 23, 2014 04:03
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This is more of a tax question I suppose but it is about my recently opened Roth IRA. I just graduated college and I have been unemployed for the whole of 2014 so far. I understand that to contribute to a Roth IRA you need earned income. I opened the Vanguard account with the 1k minimum. I have certainly earned over 1k this year between odd-jobs and gambling and I'm sure I can scrounge up receipts if I really need to but I hope that's going to be unnecessary. It seems such a measly sum to the IRS as well. Should I be worried?
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Aug 23, 2014 04:07
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I just had twin boys - I've received bits of money here and there "for the boys". Of course I could use all this money myself to bolster my Roth for the year, but I was wondering if it wouldn't make sense to set up an account for each of them to make contributions to over time - either a college savings fund or something that they can pick up when they are of age or if something happens to me. Does it make sense to separate out, or is it just as well I contribute it to an IRA if I am not hitting the maximum deferrals there?
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Aug 23, 2014 06:28
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Ropes4u posted:I'm 50 and make a decent 6 figure income where I have managed to save about 600k into my 401k. I currently invest 16% of my base into my 401k. Traditional seems like a better choice given your age and income.
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Aug 23, 2014 15:23
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AbsenceVsThinAir posted:Traditional seems like a better choice given your age and income. Thank you now I need to decide if I should try (total world) VTWSX or a target fund such as VTTVX (2025) Ropes4u fucked around with this message at 16:05 on Aug 23, 2014 |
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Aug 23, 2014 15:56
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Ropes4u posted:Thank you now I need to decide if I should try (total world) VTWSX or a target fund such as VTTVX (2025) If you make a six figure income you may be over the income limit for the tax benefits of a traditional IRA E: SlightlyMadman posted:You're correct, it's from a pension, so it has to be taxed (the fund actually took taxes out when they cut me the check). I'm not sure what you mean though, that her estate should pay the tax? I'm listed as a beneficiary on the pension fund, so they sent me a check. There's no estate or anything like that. When someone dies, the IRS and their creditors get first dibs at their wealth prior to any inheritance. So you're not being taxed, the estate is being taxed as if the deceased received a distribution from the pension and you get to inherit the difference. aw yiss posted:This is more of a tax question I suppose but it is about my recently opened Roth IRA. I just graduated college and I have been unemployed for the whole of 2014 so far. I understand that to contribute to a Roth IRA you need earned income. I opened the Vanguard account with the 1k minimum. I have certainly earned over 1k this year between odd-jobs and gambling and I'm sure I can scrounge up receipts if I really need to but I hope that's going to be unnecessary. Gambling winnings are generally not considered earned income. Isurion fucked around with this message at 17:34 on Aug 23, 2014 |
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Aug 23, 2014 17:28
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Isurion posted:If you make a six figure income you may be over the income limit for the tax benefits of a traditional IRA Yes, the tax deduction for a Trad IRA phases out at 70k income. Which is why Roth IRAs are so popular, especially via backdoor, even if you are in a higher tax bracket.
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Aug 23, 2014 18:27
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Guinness posted:Yes, the tax deduction for a Trad IRA phases out somewhere around 70k income. Filing jointly it looks to be around 160k, which would be close. But If I am excluded from the tax deduction what should I do?
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Aug 23, 2014 18:30
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If you're filing jointly you can contribute to a Roth IRA (without having to backdoor) until you make 181k so that is always an option.
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Aug 23, 2014 18:43
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Isurion posted:When someone dies, the IRS and their creditors get first dibs at their wealth prior to any inheritance. So you're not being taxed, the estate is being taxed as if the deceased received a distribution from the pension and you get to inherit the difference. There is no wealth or inheritance, just a pension with a beneficiary named. It's a state pension, so I'm pretty sure they're not trying to pull a fast one on me by tricking me into paying federal taxes? I'm really not sure why you're even trying to give me advice about this; if I wanted advice I'd ask my accountant. I was just talking about Roth IRAs.
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Aug 23, 2014 19:42
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Leperflesh posted:SlightlyMadman are you sure your inheritance is taxable, for you? Normally there's like a $5M exemption before inheritances become taxable. I'll try to answer this like as much of a dick as possible so I fit in with the guy above me. It's my understanding that, if you inherit money from a retirement account/pension, it might be taxable to you and it might be taxable to the estate. If the beneficiaries were set up correctly, and you are listed as a beneficiary, it is taxable to you and you have a few options (outlined by the IRS) of exactly how you can pay the tax on it (immediately, evenly over 5 years, evenly over your life i think). If the person who died didn't list you as a beneficiary FOR THAT SPECIFIC ACCOUNT (retirement account beneficiary designations trump wills) and somehow you are inheriting the money anyway, then most likely they screwed up and the estate will have to liquidate the account and pay the tax immediately. I'm not 100% positive, but that's my understanding. If you have a big retirement account I suggest you check the beneficiaries, and make sure the person inheriting it is smart enough to make a smart tax decision.
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Aug 23, 2014 19:52
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Droo posted:It's my understanding that, if you inherit money from a retirement account/pension, it might be taxable to you and it might be taxable to the estate. If the beneficiaries were set up correctly, and you are listed as a beneficiary, it is taxable to you and you have a few options (outlined by the IRS) of exactly how you can pay the tax on it (immediately, evenly over 5 years, evenly over your life i think). Yes, this is exactly what happened, can we stop talking about my dead mother's money now? I was just here to talk about my Roth IRA.
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Aug 23, 2014 20:03
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SlightlyMadman posted:There is no wealth or inheritance, just a pension with a beneficiary named. It's a state pension, so I'm pretty sure they're not trying to pull a fast one on me by tricking me into paying federal taxes? I'm really not sure why you're even trying to give me advice about this; if I wanted advice I'd ask my accountant. I was just talking about Roth IRAs. SlightlyMadman posted:Yes, this is exactly what happened, can we stop talking about my dead mother's money now? I was just here to talk about my Roth IRA. *This is my understanding from reading a little online and taking a couple tax classes last year. I have no experience in tax accounting or estate planning. SiGmA_X fucked around with this message at 20:08 on Aug 23, 2014 |
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Aug 23, 2014 20:05
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SiGmA_X posted:You should be talking to your accountant. It really depends on a number of factors. Read publication 575 for an overview, and then ask your CPA. What makes you think I haven't already talked to my accountant? I have talked to my accountant, I have talked to the IRS, I have talked to the state pension administrators. So please gently caress off, this is none of your business.
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Aug 23, 2014 20:07
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SlightlyMadman posted:What makes you think I haven't already talked to my accountant? I have talked to my accountant, I have talked to the IRS, I have talked to the state pension administrators. So please gently caress off, this is none of your business. E: SlightlyMadman posted:So, with this discussion of Roth IRAs, I suddenly realized I might have screwed up. I make well under the phase-out for roth ira contributions so I've been maxing it out, but this year I received an inheritance as a beneficiary on a pension fund, that it just occurred to me puts me over the limit (probably still within the phase-in). Since this is from a pre-tax pension fund, it's taxable income, so it counts as part of my AGI right? SiGmA_X fucked around with this message at 20:13 on Aug 23, 2014 |
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Aug 23, 2014 20:09
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