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Author: bjrussell Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Contribution Date: 12/10/1999 7:48 PM
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OK,

I contribute the max to my company 401K.

My wife does not contribute to any retirement plan at the moment.

I would like to open a Roth IRA while my wife opens a Traditional IRA (in order to take advantage of the maximum tax benfit & be able to contribute when she is not working).

We file jointly and our gross is 110,000, split about 50/50

Here are my questions,

1. when I use the fool calculator for myself alone, it tells me that I am contributing more than the max, but as far as I can tell this should be OK right?

2. Can anyone see any flaws in my plan? (besides spelling)

3. Are the earnings on your IRA part of the anual contribution? ie. 10% of $2000 = $200, therefore annual contribution for that year = $1800. I think this might be a dumb question, but "I ain't from around these parts" and I don't want to make and dumb mistakes.

Thanks for any of your thoughts,

B
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Author: rustedSoul Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16111 of 74759
Subject: Re: Contribution Date: 12/10/1999 9:00 PM
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bjrussell,

There aren't any dumb questions on this board. However, this doesn't mean that you shouldn't still look out for dumb answers ;)


1. when I use the fool calculator for myself alone, it tells me that I am contributing more than the max, but as
far as I can tell this should be OK right?


Your employer is probably adding the excess as after-tax contributions. There are 4 "buckets" of contributions that are usually offered: pretax matched, pretax unmatched, aftertax matched and aftertax unmatched. The "max" referred to in the calculator indicates the maximum pre-tax limit, which for 1999 is $10,000.

You should contribute as least up to the match. Additional pretax contributions are usually a good idea. After tax contributions are usually not a good idea because of the other options available such as the Roth IRA.

I recommend that you do a little planning to determine what type of contributions you want to make. If you don't want after tax dollars added, adjust you payroll deduction.


3. Are the earnings on your IRA part of the anual contribution? ie. 10% of $2000 = $200, therefore annual
contribution for that year = $1800. I think this might be a dumb question, but "I ain't from around these
parts" and I don't want to make and dumb mistakes.


Earnings are separate from contributions. How much you can contribute (2000/year; 4000/year/couple) doesn't change regardless of your earnings.


2. Can anyone see any flaws in my plan? (besides spelling)


You didn't indicate if your wife has an employer retirement plan. If your wife's employer offers a retirement plan, then she can't deduct the traditional IRA contribution. A Roth is still available or a nondeductible IRA.

In general you should try contribute for both you/wife in either an IRA or employer plan.

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Author: jeffy3 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16123 of 74759
Subject: Re: Contribution Date: 12/11/1999 10:00 AM
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bjrussell wrote:
"I would like to open a Roth IRA while my wife opens a Traditional IRA (in order to take advantage of the maximum tax benfit & be able to contribute when she is not working)."

>>>I would not contribute to your 401K after employer matching funds stop. I would then fund Roth IRA's.
I recommend a Roth over a traditional IRA for your wife. The benefits of tax-free distributions just cannot be emphasized enough. Then with any other funds do LTBH to take advantage of LT capital gains.
IMHO it is the most Foolish plan.
jeffy3

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Author: PseudoTonal Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16128 of 74759
Subject: Re: Contribution Date: 12/11/1999 11:35 AM
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This is a question, not just a reply:

I will have $62,000 income for 1999 ($58,000 income and $4000 from rolling over a traditional IRA into my wife's Roth). My wife has $0 income. I contribute 15% to my 401k, but only started this in October. My broker says I cannot contribute to my Roth IRAs since I make over $30,000 and contribute anything at all to a 401k.

This sounds wrong. I believe that I may contribute fully to both IRAs and fully to my 401k.

What is the right answer?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16138 of 74759
Subject: Re: Contribution Date: 12/11/1999 12:17 PM
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Greetings, PseudoTonal, and welcome. You wrote:

<<I will have $62,000 income for 1999 ($58,000 income and $4000 from rolling over a traditional IRA into my wife's Roth). My wife has $0 income. I contribute 15% to my 401k, but only started this in October. My broker says I cannot contribute to my Roth IRAs since I make over $30,000 and contribute anything at all to a 401k.

This sounds wrong. I believe that I may contribute fully to both IRAs and fully to my 401k.>>


It is wrong. Fire the broker. You may still contribute to your Roth IRA. Further, you may do so for your spouse's Roth IRA as well. In fact, you may contribute a fully deductible $2K to a traditional IRA for your spouse should you so desire. For details, see our IRA area at http://www.fool.com/Money/AllAboutIRAs/AllAboutIRAs.htm.

Regards..Pixy

Regards..Pixy



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Author: bjrussell Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16187 of 74759
Subject: Re: Contribution Date: 12/12/1999 5:06 PM
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rusted Soul,

My wife does not contribute to her company 401k beacuse they do not match anything. Therefore I was thinking of a traditional IRA for her so that we gain the $2000 pre-tax.

As for my self, I contribte the maximum matched to my employeers 401k, and if I understand correctly, I should still be allowed to put $2000 into a Roth IRA.

thanks for your response,

B

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16215 of 74759
Subject: Re: Contribution Date: 12/13/1999 1:02 PM
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Definitely go with the Roth IRA for both you and your wife. What little tax deduction you get from the traditional IRA is far surpassed by the tax free withdrawls from the Roth. Especially the more years you have to go until retirement.

JLC

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