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Hi, I posted this on the FC board and they directed me here.

Here it is:

I know this sounds foolish (with a lowercase f), but I seem to be in a bind. I have a Roth that has only a laughable amount in it. I opened it years ago. My spouse has too much taxable income after salary, commission, and option excersizing to allow me to contribute to the Roth - not that I am complaining, but everyone is always harping on saving for retirement in a tax sheltered account. I don't seem to know how to do that? If I can't contribute to the Roth and I can't get an IRA because I am a Stay At Home Mom so I am not earning income, then what are my other options.

Husband and I are in our 30's. We save money well enough. We have other brokerage accounts, he has a 401(k) from his employer. I am unsure as to how to proceed. Thanks!

I hope I posted this on the right board - auctionnoodle

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Hi, auctionnoodle,

Tax savings are only part of the issue. The easiest way to save on taxes is to lose money. That being said, presuming you don't want to lose money to save on taxes, there may very well be legitimate tax advantaged investment opportunities available to you.

While your husband and you may not qualify for Roth IRAs, he will be able to qualify for a non-deductible Traditional IRA. Since there are two of you, presuming you file Married Filing Jointly, you can have a 'spousal IRA', so that's $6000 ($3000 each) that can be socked away on a tax deferred basis each year. Sure, the original contributions are not deductible, and you will have to pay income taxes upon withdrawl. During your accumulation time, however, the money can compound without immediate tax consequences.

Additionally, your husband has a 401(K). Does he max that out? The 401(K) is an opportunity for him to immediately lower his AGI and income taxes up front and receive tax deferred compounding over time.

Since you mentioned that your husband exercises stock options and that your income is too high for Roth IRAs, there is a chance that he may be elegible for a non-qualified retirement plan through his work. Sometimes there are less advertised plans that cover only executives and/or other highly compensated employees. He may want to ask around and see if there is such a non-qualified plan and if he is elegible to participate. Some of those plans may provide salary deferral opportunities and the associated lowering of immediately taxable income. Be forewarned, however, that often, those plans do not have any guarantees beyond the 'full faith and credit' of the company offering the plan, and if the company goes belly up, your husband could never see the 'deferred' compensation.

In addition, if you are looking at tax advantaged investing, there are municipal bonds. Municipal bonds are free from federal taxation and some may also be free of state and local taxation, as well. Not all municipal bonds are exempt from the Alternative Minimum Tax, however, so be wary of that risk, especially as you are a higher income family.

There are also securities called "REITs" and "Limited Partnerships" that often pay portions of their cash distributions as "return of capital" distributions, rather than straight dividends. The return of capital portion of the distributions are not typically immediately taxable (unless your invested basis is below $0.00), but they will add to your potential capital gains tax when you sell. Note, however, that REITs and Limited Partnerships play by different tax rules than each other and ordinary C corporation stocks. So don't just go jumping in - make sure you understand what you're considering, first.

Buy-and-hold investing is also relatively tax efficient - you only pay tax on the appreciation when you sell, and in the interim, only the dividends are taxable. Right now, and for the next few years, qualifying dividends are also tax advantaged, getting taxed at a no-higher-than 15% federal tax rate. Start churning your portfolio, however (either via actively managed mutual funds or via trading on your own), and the tax man can bite. Additionally, occasionally, there are legitimate reasons to sell even a long-term-buy-and-hold position, and such a sale may generate capital gains taxes. And of course, there is no guarantee that Congress will continue to be favorable to investors. Investment tax rates could change on the whim of the legislature.

Good luck to you,
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<<<everyone is always harping on saving for retirement in a tax sheltered account. I don't seem to know how to do that? If I can't contribute to the Roth and I can't get an IRA because I am a Stay At Home Mom so I am not earning income, then what are my other options.>>>

I'm sensing just a bit of insecurity about the Stay At Home Mom part?

In addition to the nondeductible spousal IRA which has already been suggested by Chuck....

Have you considered opening a taxable account in YOUR name? Sometimes I think the psychological importance of that for the nonworking spouse is overlooked.

It seems that if you are interested enough in your 30s to be posting your question here...that you might feel more security/satisfaction by having your own account. Nothing wrong IMO with aiming to have the amounts in your accounts split 50/50...half his/half hers.

Doesn't affect anything that I'm aware of except the psyche, but personally I recommend it for Stay At Home Moms.

FWIW...and apologies if I misinterpreted.

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Thank you both. To answer your question, no, there is no SAHM insecurity. The insecurity is that everyone talks about their Roths and IRAs and I feel like I am missing out on something great :)

Obviously, all stock options, his 401(k), etc are in his name only. The brokerage account is in both of our names. I guess if we get divorced, this could be an issue. However, I don't anticipate that happening. Also, I am the one that pays any attention to our finances and does ALL of the trading,etc - so maybe a judge would take that into account.

Okay, so I may have given more info than needed. But, my point is that I am ok with my current "profession" though not as highly regarded as my old title (computer programmer), the current is more important - in my opinion. I am also ok with having both names on the account.

What I am worried about is being taxed more heavily than we can afford at retirement (or even now?). In the brokerage account, I am mostly buy and hold somewhat long term (1-3 years mostly). Sometimes I see fit to drop something after less than a year, but i try hard not to because we get heavily taxed that way. I am trying to build more dividend producing stocks into our portfolio.

So, that's the background and basis for the question.

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If your combined AGI is less than $150K and you and DH file jointly, you can contribute $3000 to a Roth. The contribution is not tax-deductible, but the money will grow tax free, and withdrawals will be non-taxable during your retirement years. If your combined AGI is between $150K-160K you can contribute only a portion of the $3000 to a Roth based on a formula. If your combined AGI is over $160K, then a non-deductible TIRA will have to do instead of a Roth.

This is a rather simplistic answer. You can get much more detailed info by going to the IRS website and downloading Publication 590. (Rules for Roth IRAs start on Page 54.)

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I also forgot to add that you might want to consider an annuity. There are some relatively cheap ones--I believe Vanguard and TIAA-CREF offer ones that are not too expensive. In an annuity the contributions are not tax deductible, but the money does grow tax-free. When you begin withdrawals, you are taxed on a percentage basis of contributions/profits (you're not double-taxed on your contributions IOW).

Keep in mind that your investment choices are limited in an annuity, and you are charged an extra annual fee that you wouldn't be charged in a taxable account. Please do a thorough investigation of what annuities are and how they work before investing. For many investors they are not suitable, but in a few cases, like those with high incomes who are saving/want to save a lot they can offer a way for the dollars to grow tax-free. I have one because, like you, I'm not eligible for a Roth, I've already maxed out my 401K and non-deductible TIRA, plus I save a substantial amount into a taxable account. I also consider it a way to gain more tax-conscious withdrawal flexibility during retirement.

It's another thing to consider. You might want to read this thread:


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