Rollovers/Retirement

[Hector]

I'm no expert so I could be leading you astray, but last year we were able to roll our 401k's into a regular IRA, then because there was an exception for the past 2 years, we were able to convert our regular IRA's to Roths. Granted, we had to pay taxes on the gain (again, I think that's what it was but someone can clarify I'm sure), but we thought it would be worth it over the years until retirement to have the money in a Roth. We were able to max on traditional IRA's again this year and convert them to Roth's so that might be an idea for you if your income is over the normal Roth limit.

I dont know much about Regular IRA to ROTH IRA conversation, but dont we need to pay taxes on gain as well as pre tax contribution?

[Hector]

Tennessee. 28% bracket.

So state tax is gonna be 6%. Total tax would be 34%. I personally wont go for Roth in this situation if I am not able to max out 401k and Roth.

[Guest]

So why does it matter if you can max them out? If you can max them out should you just stick to traditional IRA?

[happygirl]

I dont know much about Regular IRA to ROTH IRA conversation, but dont we need to pay taxes on gain as well as pre tax contribution?

That makes sense. This is one of those areas I don't understand as well as I should. Fortunately we have a tax guy whom I really like and trust and DH has a good understanding of the process.

[Hector]

So why does it matter if you can max them out? If you can max them out should you just stick to traditional IRA?

IMO its better to put more money in retirement accounts. When you are able to max out 401k and IRA, it is likely that remaining money would go in taxable account where one pay tax every year. I think 5k in Roth is better choice than 5k in Regular IRA and 1750 in taxable. Also you are on top when it comes to limit of adjusted income for qualifying for Roth. It is likely that you wont able to contribute to Roth in future because your income (if not wedge then at least from your investments) will go up. In retirement when you start withdrawing its good to have diversification between pre tax and post tax money coz it is likely that your income in retirement will be higher and you have a couple of options in Roth. But there isn't anything you can do with regular IRA as it is less flexible.

[Guest]

So if I am not able to max out both (which I think we will but anyway) if I am not able to max out both I should do:

1. Roll her existing 401k into a traditional IRA
2. Continue contributing 6% into both 401ks (for the match)
3. Deposit any excess into the traditional IRA.

If I can max them both out then you would do the following:

1. Roll her existing 401k into a traditional IRA and convert to Roth
2. Continue contributing 6% into both 401ks (for the match)
3. Deposit any excess into the Roth IRA.

[Hector]

So if I am not able to max out both (which I think we will but anyway) if I am not able to max out both I should do:

1. Roll her existing 401k into a traditional IRA
2. Continue contributing 6% into both 401ks (for the match)
3. Deposit any excess into the traditional IRA.

If I can max them both out then you would do the following:

1. Roll her existing 401k into a traditional IRA and convert to Roth
2. Continue contributing 6% into both 401ks (for the match)
3. Deposit any excess into the Roth IRA.

I will definitely
1. Roll her existing 401k into IRA
2. Continue contributing 6% into both 401ks for the match
3. Deposit excess to IRA (Roth if you are able to max bot, traditional if you are not able to match)
You will need to be careful if you are thinking about 'Roll her existing 401k into a traditional IRA and convert to Roth' I am not sure how much do you want to convert regular to Roth. I am also not aware about maximum limit of that conversation, but you will need to pay taxes on this so calculate it and make sure you are increasing your tax bracket in doing so.