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401k and Roth IRAs - Page 2

post #16 of 99
Thread Starter 
Fidelity apparently allows you to convert into a Roth IRA (or maybe its a regular IRA).
post #17 of 99
Quote:
Originally Posted by jakeyt View Post

Does it make more sense to max out and try to put $17.5K into my 401k? I can, one day, roll it over into a Roth IRA? Won't everthing I put into a Roth IRA be post-taxed anyways, so aren't I getting taxed twice?

I don't believe you can convert a Roth IRA into Traditional IRA or 401k (or even understand the logic). Even rolling a traditional IRA into a company 401k is highly dependent on the sponsoring 401k.

You can, however, convert a traditional IRA into a Roth via backdoor conversion. This is a useful tool for high income earners who are exempt from Traditional IRA deductions. Simply fund a traditional IRA, don't claim exemptions, and then convert the account into a Roth. Keep in mind, that you must convert ALL available accounts into a Roth status, which means you are liable for any taxes owed on the basis of your traditional IRA accounts. The advantage of the backdoor, allows for a tax free shelter for retirement funds once all tax exempt vehicles (e.g. traditional 401k or SEP-401k) are exhausted. Theoretically, by applying such tactics, a married couple couple can save 17.5K + 17.5K + 5.5k + 5.5k = 46k in retirement accounts per year. Not gigantic numbers, but a nice foundation for long term financial planning.

EDIT: you can recharacterize a Roth
see: IRS publication
Edited by norcaltransplant - 3/28/13 at 4:11pm
post #18 of 99
If you have too much IRAs then the backdoor conversion is not applicable for Roth.
post #19 of 99
Quote:
Originally Posted by gettoasty View Post

If you have too much IRAs then the backdoor conversion is not applicable for Roth.

Too much? What do you mean? You just need to roll over ALL old accounts into a 401k or pay taxes on the basis from the prior accounts. Oh, and be sure to fill out form 8606.
post #20 of 99
I was under the impression that if you have too much IRA accounts (or perhaps too much assets in IRAs) that the backdoor conversion is not applicable.

Or maybe it was just a special case where the IRAs were too spread out and liquidating them may incur fees etc.

I just overheard colleagues shog[1].gif
post #21 of 99
The problem with the conversion, is that if you have a significant amount of savings in a traditional IRA which cannot be rolled into another tax sheltered vehicle (e.g. 401k) you are automatically taxed on the basis at your marginal income tax bracket. Fees for closing account are usually nominal (I paid ~$100 per institution). The fees and, primarily, the additional incurred taxes, however, can easily offset the potential gains of funding a backdoor Roth.

The Backdoor Roth is very young (c. 2010) and, IMO, will close sometime in the future.
post #22 of 99
FWIW, my hierarchy of financial priorities for the OP would be:

1) emergency fund (3-6 months in short term accounts like HY online savings or CDs or Ibonds after 1-year holding)
2) Consumer Debt (Credit Cards) if APY >10%
3) 401k up to company match if you are staying for >2 years
4) Roth IRA
5) The remainder of your 401k
6) Medical savings accounts (esp if you have children)
7) Taxable savings
8) Fun

Edit: At 2.3% let your student loans sit, especially if you still qualify for any student loan interest deduction. Think of it as hedge against rising inflation with a built in put option.
post #23 of 99
Thread Starter 
Wow, I like this comment. Awesome answer. Thumbs up from me. I agree, the student loans with low interest make it worthwhile to sit. I was thinking about applying for a way to do an extended payment. Right now its too high at $400, but if I can get it down to $166 a month, I can use whatever is left over into an IRA. The question is then do I do a 4-year or 2-year interest only payment. Any thoughts? I would still try to pay it off in 5-10 years (my current schedule), but at least I focus on money into retirement than paying off such low interest debt.
post #24 of 99
You can recharacterize a Roth. See for the above link.

Your age, however, is the greatest benefit to contributing to a Roth
post #25 of 99
Thread Starter 
Quote:
Originally Posted by norcaltransplant View Post

You can recharacterize a Roth. See for the above link.

Your age, however, is the greatest benefit to contributing to a Roth

Here is the link I am talking about https://www.fidelity.com/retirement-ira/ira/401k-rollover which says a 401k rolling over to an IRA. Maybe I misunderstand what this means?
post #26 of 99
Thread Starter 
Quote:
Originally Posted by jakeyt View Post

Here is the link I am talking about https://www.fidelity.com/retirement-ira/ira/401k-rollover which says a 401k rolling over to an IRA. Maybe I misunderstand what this means?

Not sure if Fidelity's link changes anything.
post #27 of 99
Look man, you need to start reading about the differences between Traditional IRAs, Roth IRAs, 401ks/403bs, and HSAs/FSAs. Each product has advantages and disadvantages based on different tax strategies and expectant incomes. I didn't know much about any of the above six years ago, but I was forced to learn.

The only person who has an honest interest in the well being of jakety is yourself. It behooves oneself to spend a little time and self-educate yourself. Start with the Boglehead website and the personal finance section at Barnes and Noble.
Edited by norcaltransplant - 4/1/13 at 10:34am
post #28 of 99
Most companies with a 401k plan also provide advisor service.....use it.
post #29 of 99
A question: I just started real work and only really have a checking account with my dad's bank choice, the dreaded Bank of America. I grew up in a lower middle class family and my dad was never really aware of good finance tips.
I have been looking into the Roth IRA plan and am very interested.
My question is this, should I close said checking account and use the Roth IRA as I would a checking account? If not, what can I pair my Roth IRA with to make this possible (better checking account)?
post #30 of 99
You cannot mix qualified money with non-qualified money, meaning, you cannot co-mingle the money type.

Open a brokerage account with your checking account, or invest, or just let it sit there doing nothing but have some liquidity if you need it (you sound young so it can be there for emergencies)

Open up a Roth IRA with the many commercial / investment banks out there or through a broker/RIA. However, you should first maximize your 401(k) if offered for the tax savings then consider a Roth IRA.
If there is no company benefit program installed, consider an IRA before the Roth.

Just my 2 cents.

edit:
Advisor services are not helpful unless you work through a 3rd-party investment advisor. For example, if your custodian is through Fidelity, the most a Fidelity rep will help with is give you a breakdown of what options are available within the 401(k) plan, performance etc. but actual advice is against the law as there is a conflict of interest.
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