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Reaching IRA contribution limit...what to do next?

Reaching IRA contribution limit...what to do next?

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Old Jun 21st 2018, 11:38 pm
  #16  
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by Giantaxe View Post
Likely an expensive one tax-wise given the OP's income and the fact that they have been making pre-tax IRA contributions.
Making the investments post tax effectively adds the tax rate onto the limit, so could get more cash in.
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Old Jun 21st 2018, 11:43 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by shiversaint View Post
I was talking about index funds.
Then your point applies less. These days, the fees on almost all Schwab and Fidelity index funds are comparable to those from Vanguard, and the same can be said for a few other fund providers. There has been a "fees war" going on between the biggest providers over the last year or two.

There are many index funds with ridiculous expense ratios out there still, but Vanguard aren't the sole purveyor of low-fee index funds any more.
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Old Jun 21st 2018, 11:51 pm
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Default Re: Reaching IRA contribution limit...what to do next?

I don't do much investing outside of retirement, but I think with non retirement you should be looking for lower turnover funds.
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Old Jun 22nd 2018, 5:05 am
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by tom169 View Post
Making the investments post tax effectively adds the tax rate onto the limit, so could get more cash in.
At the expense of a relatively large tax hit up front. OP is in a higher tax bracket and has been making pre-tax IRA contributions. Even if non-deductible IRA are now made, any conversion to a Roth IRA will result in the pro-rata conversion rule being applied:

https://www.rothira.com/what-is-a-backdoor-roth-ira#tax
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Old Jun 22nd 2018, 10:35 am
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by Giantaxe View Post
At the expense of a relatively large tax hit up front. OP is in a higher tax bracket and has been making pre-tax IRA contributions. Even if non-deductible IRA are now made, any conversion to a Roth IRA will result in the pro-rata conversion rule being applied:

https://www.rothira.com/what-is-a-backdoor-roth-ira#tax
Right, but OP doesn't have to go and convert it all.
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Old Jun 22nd 2018, 2:26 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by Owen778 View Post
Then your point applies less. These days, the fees on almost all Schwab and Fidelity index funds are comparable to those from Vanguard, and the same can be said for a few other fund providers. There has been a "fees war" going on between the biggest providers over the last year or two.

There are many index funds with ridiculous expense ratios out there still, but Vanguard aren't the sole purveyor of low-fee index funds any more.
They are however the only company in which its funds own the company itself.

Beyond that, their range of index funds, for me, makes them the head of the pack. I totally appreciate your point when it comes to expense ratios and ultimately that means decision on who to use probably shouldn't be based on that alone. Ultimately, for people new to this game, Vanguard is an easy and (relatively) safe recommendation, which is why I push it.
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Old Jun 22nd 2018, 3:21 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by tom169 View Post
Right, but OP doesn't have to go and convert it all.
However much or little is converted, the same pro-rata rules apply. You can't "cherry pick" post tax contributions to avoid taxation on the conversion to the Roth. So the tax situation for the OP (higher marginal tax rate on the conversion) is going to be the same regardless of how much they convert.

Last edited by Giantaxe; Jun 22nd 2018 at 3:26 pm.
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Old Jun 22nd 2018, 3:33 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Thank you, all, this has been an education. I will consult with the CPA about a Vanguard Imperial fund, and attempt to contribute to that as I would a Roth IRA. Assuming it makes money, I will owe tax on that at the end of each year... They key is to keep contributing to it, I guess!

I live in hope that we eventually are offered 401k plans in my start up.

Cheers,

H
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Old Jun 22nd 2018, 6:32 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by PetrifiedExPat View Post
I live in hope that we eventually are offered 401k plans in my start up.
Keep pestering them to do so and encourage your coworkers to do likewise. Worked at one startup I worked at.

401(k) is a huge benefit given the contribution limits are so much higher than for an IRA and there aren't strict income limits for contributing.
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Old Jun 25th 2018, 2:14 am
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Default Re: Reaching IRA contribution limit...what to do next?

A back door Roth IRA can work well if you have NO other Traditional IRA assets. If you already have built up funds in a Trad IRA the back door may not be worthwhile, in any event it would be best to seek advice from a tax professional before going down this route as filing your return can be more complicated.

If you just want to look at after tax (non ira) savings you can open a Non Qualified brokerage account. Fidelity, Vanguard and other online providers offer low cost accounts, look out for monthly fees and costs per trade. You can invest in stocks, etf's and mutual funds. You will be taxed on your gains. This includes interest, dividends (you will receive a 1099 each year ) and this will need to be included on your tax return. When you sell holdings (if they have increased in value) you will also be taxed on your gains..

Also agree that working on your employer to provide a 401k is the best option. It gives you the easiest and most tax effective way to contribute and it has benefits for your employer too.
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Old Jun 25th 2018, 12:54 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by PetrifiedExPat View Post
Thank you, all, this has been an education. I will consult with the CPA about a Vanguard Imperial fund, and attempt to contribute to that as I would a Roth IRA. Assuming it makes money, I will owe tax on that at the end of each year... They key is to keep contributing to it, I guess!

I live in hope that we eventually are offered 401k plans in my start up.

Cheers,

H
You would owe tax on any dividends paid out during the year. You wouldn’t owe tax on any* capital gains until you realized them by selling the increased value investments.

*there is usually a small amount of capital gains that the investment company realizes each year as part of their underlying trading, and pays out to you. It’s usually in the sub-$100 level, on each tens of thousands of dollars invested, so nothing that really matters for tax purposes.
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Old Jun 25th 2018, 1:56 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by kodokan View Post


You would owe tax on any dividends paid out during the year. You wouldn’t owe tax on any* capital gains until you realized them by selling the increased value investments.

*there is usually a small amount of capital gains that the investment company realizes each year as part of their underlying trading, and pays out to you. It’s usually in the sub-$100 level, on each tens of thousands of dollars invested, so nothing that really matters for tax purposes.
This a key bit of info, which I did not appreciate. That makes sense.

As of this morning, I made a formal request to our CEO to initiate a 401k plan at our company. I will encourage others to do the same.
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Old Jun 26th 2018, 4:09 am
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by PetrifiedExPat View Post
Hi all,

I am pretty close to the IRA contribution limits based on married filling jointly income. My employer does not offer a 401k program. My wife is at the limit of her 401k contribution limit, therefore, if our combined income does creep over, and I can no longer contribute to an IRA, what other options are out there? Hedge funds or similar?

Thanks,

H
Municipal Bonds, Municipal Bond ETF or Mutual Fund. No tax. IShares, Fidelity, Vanguard.

https://en.wikipedia.org/wiki/Municipal_bond

Last edited by jeepster; Jun 26th 2018 at 4:16 am.
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Old Jun 26th 2018, 6:06 pm
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Default Re: Reaching IRA contribution limit...what to do next?

Originally Posted by PetrifiedExPat View Post
This a key bit of info, which I did not appreciate. That makes sense.

As of this morning, I made a formal request to our CEO to initiate a 401k plan at our company. I will encourage others to do the same.
This is a good idea, but you need to be very careful they don't just choose whichever provider will just do it the cheapest. Generally, plan providers do that by transferring the costs from the employer to the employee, in the form of high mutual fund expense ratios, monthly fees and trading fees.
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Old Jun 28th 2018, 10:09 am
  #30  
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Default Re: Reaching IRA contribution limit...what to do next?

Another thought, I have just discovered 'MAGI', or 'Modified Adjusted Gross Income'. We have a child on the way and a mortgage, would these sorts of factors reduce MAGI (vs our actual gross income)?

For example, if we grossed at $189,000 (beginning of Roth IRA contribution phase out), would our MAGI actually be significantly lower? I do have a CPA to guide us through but am interested in all your thoughts!

H
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