IRA strategy for 2007
12-17-2006, 02:53 AM
#1
Gets Weekends Off
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Joined APC: May 2005
Position: A320 F/O
Posts: 510
IRA strategy for 2007
Remember all, you can make deposits into a nondeductible IRA for 2006, 2007, 2008, and 2009. And in 2010, you can convert the funds to a Roth IRA.
You will be taxed on the growth of the $ from these four years, but not on the original contributions. You could deposit $4,000 in 2006 and 2007, $5,000 in 2008 and 2009. Limits are $1,000 higher each year if you are age 50 or higher.
With luck, you'll have earnings of a few thousand dollars by 2010. Do the conversion, and 5 years later you have a completely tax-free account! Only the earnings are taxed, and the tax is spread over your 2010 and 2011 returns.
Food for thought!
You will be taxed on the growth of the $ from these four years, but not on the original contributions. You could deposit $4,000 in 2006 and 2007, $5,000 in 2008 and 2009. Limits are $1,000 higher each year if you are age 50 or higher.
With luck, you'll have earnings of a few thousand dollars by 2010. Do the conversion, and 5 years later you have a completely tax-free account! Only the earnings are taxed, and the tax is spread over your 2010 and 2011 returns.
Food for thought!
12-17-2006, 08:36 AM
#3
Administrator
Joined APC: May 2006
Position: C-172
Posts: 8,024
LAFF, I don't think a taxpayer can contribute to both a Roth and a Traditional in the same tax year. I have not looked for the IRS regs, but I recall a similar question came up during my practice and the consensus among the tax professionals was that you could not. The two IRA schemes are very different from each other in many ways. And I believe Congress did not think the average American has so much money to sock away into two or three or four retirement vehicles.
However, there is such a thing as a Partial Roth.
Partial Roth contribution eligibility is available for:
Single filers with an adjusted gross income between $95K to $110K
Joint filers with an adjusted gross income between $150K to $160k
If you are only eligible for a partial contribution to a Roth IRA, consider putting the balance in a Traditional IRA. While your contribution to the Traditional IRA will not be tax deductible, you will still benefit from the potential for tax-deferred growth.
The general rule is that you pick one or the other, depending on your eligibility. The Traditional, although it has the benefit of current deductibility, is more burdensome with regards to paperwork. For example, you have to keep track of the basis of non-deductible amounts each year on Form 8606. Because of the tax-free distribution feature of the Roth, it is considered the better of the two. I mean, what is there to dislike about tax free income?
One thing to remember is that you have to actually open a Roth account and have it designated as such before you can make contributions. The taxpayer does not report to the IRS that he/she has made a Roth contribution; the financial institution does the reporting.
Hope this helps.
However, there is such a thing as a Partial Roth.
Partial Roth contribution eligibility is available for:
Single filers with an adjusted gross income between $95K to $110K
Joint filers with an adjusted gross income between $150K to $160k
If you are only eligible for a partial contribution to a Roth IRA, consider putting the balance in a Traditional IRA. While your contribution to the Traditional IRA will not be tax deductible, you will still benefit from the potential for tax-deferred growth.
The general rule is that you pick one or the other, depending on your eligibility. The Traditional, although it has the benefit of current deductibility, is more burdensome with regards to paperwork. For example, you have to keep track of the basis of non-deductible amounts each year on Form 8606. Because of the tax-free distribution feature of the Roth, it is considered the better of the two. I mean, what is there to dislike about tax free income?
One thing to remember is that you have to actually open a Roth account and have it designated as such before you can make contributions. The taxpayer does not report to the IRS that he/she has made a Roth contribution; the financial institution does the reporting.
Hope this helps.
01-22-2007, 04:15 PM
#5
Gets Weekends Off
Joined APC: Jul 2005
Posts: 2,242
Vanguard - their target retirement funds are very good.
They are the company I use for my investments. You can manage all your accounts thru them. They have a system that lets you put in the funds, banks, credit cards, mortgages, other assets / liabilities and track everything from Vanguard. It even does auto updates on a schedule you provide.
Very useful tool to help you analyze your portfolio as well.
-LAFF
They are the company I use for my investments. You can manage all your accounts thru them. They have a system that lets you put in the funds, banks, credit cards, mortgages, other assets / liabilities and track everything from Vanguard. It even does auto updates on a schedule you provide.
Very useful tool to help you analyze your portfolio as well.
-LAFF
01-23-2007, 03:40 AM
#8
Gets Weekends Off
Joined APC: Jul 2005
Posts: 2,242
What fees did you see. Their funds are no-load. There may be a slight account mx fee but it is one of the better ones in the industry.
T Rowe Price also has good mutual funds - they tend to be more agressive. If you're young (20s) I would recommend something with a 90% stock 10% bond allocation starting out in investing.
-LAFF
T Rowe Price also has good mutual funds - they tend to be more agressive. If you're young (20s) I would recommend something with a 90% stock 10% bond allocation starting out in investing.
-LAFF
08-04-2007, 06:54 PM
#10
Gets Weekends Off
Joined APC: Sep 2006
Position: MD11
Posts: 315
Originally Posted by Tech Maven
Remember all, you can make deposits into a nondeductible IRA for 2006, 2007, 2008, and 2009. And in 2010, you can convert the funds to a Roth IRA.
You will be taxed on the growth of the $ from these four years, but not on the original contributions. You could deposit $4,000 in 2006 and 2007, $5,000 in 2008 and 2009. Limits are $1,000 higher each year if you are age 50 or higher.
With luck, you'll have earnings of a few thousand dollars by 2010. Do the conversion, and 5 years later you have a completely tax-free account! Only the earnings are taxed, and the tax is spread over your 2010 and 2011 returns.
Food for thought!
You will be taxed on the growth of the $ from these four years, but not on the original contributions. You could deposit $4,000 in 2006 and 2007, $5,000 in 2008 and 2009. Limits are $1,000 higher each year if you are age 50 or higher.
With luck, you'll have earnings of a few thousand dollars by 2010. Do the conversion, and 5 years later you have a completely tax-free account! Only the earnings are taxed, and the tax is spread over your 2010 and 2011 returns.
Food for thought!
Are you saying there is a special exclusion in 2010 if you are over the roth income limit?
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