IRA Confusion - need advice

[skhoury]

Hello all,

I'm hoping someone in this forum can assist me and my wife in figuring out what we are able to contribute to with respect to retirement savings and IRAs. I'm very confused by the rules, MAGI requirements, joint returns, etc ... please help me shed some light? Here are our baseline details and I'll follow with specific questions:

Both my wife and I contribute to work place retirement accounts (401k)
I also earn income on the side with a consulting gig (straight 1099 income)
My salary: $147k
Wife salary: $62k
Consulting: ~$25k
AGI/MAGI is ~$164
Joint return.

Questions:
* I'm thinking of opening an SEP-IRA to save on taxes and for retirement - possible?
* Can I open a Traditional IRA for myself and/or for my wife?
-If not for me due to salary, can my wife? Does joint return affect this in anyway?
* Can I open a ROTH IRA for myself and/or for my wife?

Regarding the last two points - I know $5500 is the max limit for IRAs this year and that is cummulative across Traditional and Roth.

Any thoughts on how we can structure accounts to save for the future?

Thanks in advance folks ..

[skhoury]

So I just ran a couple of Google searches for IRA eligibility calculators and it seems we are not eligible for deductible traditional IRAs. But we can each contribute the maximum to ROTH IRAs or non-deductible traditional IRAs (which wouldn't seem to make since vs. a ROTH option).

I *think* I can still open an SEP-IRA though for my consulting income.

Thoughts?

[Petunia 100]

Yes, you can open a SEP-IRA. Your contribution is limited to 20% of your net self-employment income. And yes, you can deduct your contributions.

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs

You and your wife may each contribute to traditional IRAs. However, your income exceeds the limit to be able to deduct the contributions. You can see the income limits for those covered by a retirement plan at work here:

http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

You and your wife may each contribute to Roth IRAs provided your MAGI stays under 178k. If there is some doubt, one strategy is to wait until the year is over, calculate your MAGI, then contribute to Roths. You have until April 15th to make IRA contributions for the previous year.

http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013

If you find yourself unable to contribute to Roths, you can still do a "backdoor" Roth. This means you would make non-deductible traditional IRA contributions, then convert to a Roth. There are no income limitations to convert. If you have no deductible contributions sitting in traditional IRAs, Simple IRAs, or SEP IRAs, there is no income tax due to convert contributions. (You would pay income tax on any converted gains). However, if you do have deductible contributions in a traditional, Simple, or SEP, you must convert a pro rata share of both deductible and non-deductible contributions.

[skhoury]

That's very helpful, thank you Petunia.

I'm thinking of going with an SEP-IRA with Vanguard and Roths for my wife and I at Betterment (love their technology).

[kv968]

That's very helpful, thank you Petunia.

I'm thinking of going with an SEP-IRA with Vanguard and Roths for my wife and I at Betterment (love their technology).

Instead of using Betterment and getting charged an extra 0.15-0.35% and up to 0.25% on some of the ETF's they use, why not just go to Vanguard (whose ETF's Betterment uses in a third of their portfolio) and use one of their Target Date Funds for an total expense of 0.16-0.18% and get practically the same thing?

[scfr]

You can play it safe and wait until you do your 2013 taxes and then calculate how much you can contribute to your IRAs and to which types. My husband & I wait to contribute to our IRAs until we prepare out tax return, because his income is from self-employment and varies quite a bit, and we are not eligible for every type of IRA every year. We use Turbo Tax to prepare our taxes and let the software tell us how much we can contribute. Most of our IRA accounts are at Vanguard, which we love. We have every possible kind of IRA: rollover, traditional, Roth, and SEP.

[skhoury]

You can play it safe and wait until you do your 2013 taxes and then calculate how much you can contribute to your IRAs and to which types. My husband & I wait to contribute to our IRAs until we prepare out tax return, because his income is from self-employment and varies quite a bit, and we are not eligible for every type of IRA every year. We use Turbo Tax to prepare our taxes and let the software tell us how much we can contribute. Most of our IRA accounts are at Vanguard, which we love. We have every possible kind of IRA: rollover, traditional, Roth, and SEP.

Instead of using Betterment and getting charged an extra 0.15-0.35% and up to 0.25% on some of the ETF's they use, why not just go to Vanguard (whose ETF's Betterment uses in a third of their portfolio) and use one of their Target Date Funds for an total expense of 0.16-0.18% and get practically the same thing?

kv968 ... great point. I actually thought about that but just wasn't sure if Betterment's diversifying technology was better, etc.

scfr ... another great point. Will def wait until I've computed our 2013 return to figure out what we can contribute.