Traditional IRA if no more contribution allowed to 401K or Roth IRA?
Hello all, I would greatly apprecaite your thoughts on the following IRA question. Thank in advance, I appreciate it!
I am employed and my wife stays at home. I currently max-out my company 401k and our MAGI is more than allows for contribution to Roth IRAs. We previously contributed to Roth IRAs before MAGI exceeded allowable limit. So, should I open traditional IRAs for us and start contributing there…or would I be better off with a taxable account?
Not sure if this enough information for you to provide your thoughts. Here is a little more information: we are not yet 40, our emergency cash fund is good, we pay a little extra on our mortgage every month, we contribute monthly to 529 college plans. I’m trying to figure out what to do with the little bit of extra money each month and am debating between traditional IRA vs taxable account.
Thanks again,
-Paul
Permalink Submitted by Alan - IRA critic on Mon, 2013-04-15 17:06
If either of you do not have a non Roth IRA balance, you can make the non deductible TIRA contribution, report it on Form 8606 and then convert it right away to a Roth IRA tax free. The end result is the same as a regular Roth IRA contribution, although it takes an extra step. If you do have a non Roth IRA balance, then the conversion would be pro rated and would likely be mostly taxable. This applies to each of you separately, for example if only your wife has no non Roth balance, she can make a spousal non deductible TIRA contribution using your earned income and convert it tax free. If YOU have a non Roth IRA, if your 401k plan accepts IRA rollovers, you can roll your pre tax TIRA balance into the plan which will then allow you to convert a non deductible contribution tax free.If the above will not work for you, then your question does not have a clear answer. If your plan has a Roth option instead of just a pre tax option, you could also direct some of your deferrals to the Roth option and there is no income limit to do that. Of course, your take home pay would drop since the Roth part would be included in your W-2 income.