Traditional IRA question...what would you do?

**MakeAStash** · 12-12-2012, 05:56 PM

If you are making a tIRA contrib anyhow, then add the $3000 and get the lower-priced Admiral shares. The expense ratio is only slightly lower, but if you reinvest for 30 years the difference will become noticeable.

**Petunia 100** · 12-12-2012, 05:59 PM

Originally posted by kaleida View Post

I have $7000 in a traditional IRA, in an index fund at Vanguard, and I'm paying a higher expense ratio compared to my other Vanguard accounts, because this one doesn't meet the $10,000 minimum requirement for "admiral shares"

What would you do?

1) Add $3,000 to it so I can get Admiral shares with the lower expense ratio (even though my income level means I get NO tax advantage from doing this - my income is too high to get a tax deduction if I contribute to it)

2) Convert it to a Roth IRA - even though I'm in a relatively high tax bracket at the moment and taxes might be lower for me when I retire

3) Leave it alone, this account is only about 4% of my retirement savings anyway so why bother

4) Something else???

I'm only 31 by the way so if I leave it alone it's going to be sitting there for a lonnnnnnnng time...30 more years at least...

Anyway what would you do?

Thanks in advance

Do you have a good 401k plan with low cost investments? If so, does your plan accept rollovers? You coud roll your traditional IRA into your 401k. This also has the benefit of making it simpler to do a back door Roth, if you are so inclined.

**smk** · 12-13-2012, 02:43 AM

i don't know how much benefit you will get from doing an extensive analysis about what to do when to lower the expenses on the fund when the time is probably only 1 year. you can just add more to the fund when there are tax benefits next year.

converting to a roth can be an important decision, and you need a proper calculator to do it. one thing you didn't mention was whether you put stocks or bonds in the ira, be it roth or regular. knowing which one to place where to maximize efficiency can have a meaningful effect over the long run.

**thesimplemoneyblog** · 12-13-2012, 04:40 AM

It could make sense to put $3,000 into the Traditional IRA as a non-deductible contribution, but then you have more of a hassle in dealing with a mix of deductible and non-deductible funds in an IRA. What is the difference in the expense ratios? Have you run the calculation to see what the current versus proposed fee would be? If it is something like 0.2% difference, then on a $7,000 investment, it would cost you $14 extra per year. Even though it represents a small portion of your retirement savings, it might be worth the hassle given that you plan to leave it there for a very long period of time.

Income tax rates are at historic lows, so just because you may be in one of the higher tax brackets now, doesn't mean the tax rates when you go to withdraw the funds will be lower. You could be in a lower tier at retirement, but the tax rate itself for that tier could actually be higher.

**smk** · 12-13-2012, 09:05 AM

in equity portfolio management they often talk about harvesting losses to lower your taxes. you can also harvest your gains by disciplining yourself to take them on a yearly basis just up to the border where your tax rates start going too high.

i think the same thing could work with a trad ira. use it to lower taxes when the rates are relatively high for you. then when you are having a bad year and the rates are low, switch it to a roth...

**violet80907** · 12-21-2012, 01:35 PM

Originally posted by smk View Post

i don't know how much benefit you will get from doing an extensive analysis about what to do when to lower the expenses on the fund when the time is probably only 1 year. you can just add more to the fund when there are tax benefits next year.

I was thinking this exact thing, then it dawned on me that you likely mean you have a high enough income to NEVER get to make tax deductible IRA contributions.

**jpg7n16** · 12-21-2012, 04:53 PM

If your accounts are at Vanguard, you should consider switching to the ETFs (when available). Same ER as admiral, but no mins.

Is there an ETF option for the fund you have? What's it's expense ratio?

If you don't put the $3k in your IRA, what will you do with the funds? Have you maxed your employer's plan?

Traditional IRA question...what would you do?