getting started, roth 2010?
We have never done any retirement planning at all. We are early 40s with no plan in place. We do have about 200K in a 401k, but no other IRAs of any kind.
We like the idea of a roth, as we think taxes will be higher in the future and we expect to be in the highest income tax bracket for many years, even after retirement.
Today, we have about 900K in cash on hand.
Can we somehow convert our 900K into a roth account that will be tax free for us or our kids down the road?
Or, is there a limit to how much we can contribute to an IRA that we are going to convert to roth?
Thanks.
Permalink Submitted by Al Fry on Sat, 2009-06-27 18:46
The maximum contribution limit is $5,000 for each, subject to MAGI limits. See Pub 590 at IRS.gov, p. 62 to calculate your MAGI.
Permalink Submitted by Anonymous (not verified) on Sat, 2009-06-27 20:48
The Roth eligibility requirements dissappear beginning in 2010, so you can start a steady contribution of 5K per taxpayer per year (assuming you have income each year). The limits will probably increase with some sort of inflation index. For 2009, you will still need to see, if you qualify. If not, you can still make a non-deductile contribution and convert next year.
Unfortunately, converting retail money (non-IRA) will not work.
I think you are at a critical point in your life not to fall behind in saving for retirement so if you are really serious, I would also seek the advice of a CFP (fee-based).
My advice, knowing only what you wrote, would be to steadily max out your 410K deferrals. Your company might even offer a Roth 401K, if you want to take that approach (no income eligibility requirements, unlike regular Roth pre-2010). Next, maximize your regular Roth every year, since these will add up over time. The regular retail “cash” you have should probably also be put to work, but it really depends how much you are comfortable with. Tax efficient index funds for the equity side. Bond index funds, tax-free munis, cds? Cash is certainly not a bad thing right now, but too much can really inflate away over the long run.
In summary, you will need to look at you own risk tolerance to see how far you want in invest. That is why a good CFP can really create a good plan. Many mutual fund companies like Fidelity, Vanguard, Schwab will run a free plan for you if you invest a sizable amount with them. And the beauty of it is that you don’t have to follow their advice and still sit on the cash.
Good luck. It appears you are in a great financial position for your age and the time we are in, so invest some time into researching this.
pmk
Permalink Submitted by Ryan SMith on Sat, 2009-06-27 22:16
The unfortunate thing is that we never spent much time thinking about IRAs. With a substantial income now and for the foreseeable future , deferring the tax burden till later never really appealed to us.
Now that the Roth is an option without income limits, I wish we had been contributing towards something all along, so that we could have converted it.