Skip to main content
No. of Recommendations: 0
Subject: Re: IRA

Greetings waseabo and welcome to the Motley Fool!

<<Well here goes my dumb question:

I was going to open a Traditional IRA (1999) and was told that I can't,
because:
a) I am a single person that made more than $41k
b) was participating in a 401K Plan

Is that is correct? >>
Print the post Back To Top
No. of Recommendations: 0
Baloney.
Anybody can open a traditional IRA with $2000 annually, if the person has at least $2000 of earned income.
It may not be deductible, and if you are single and made too much and are covered under a 401k, it isn't,
but that is a different subject.
However, to open it for 1999 you gotta move! Monday is the last day!
Regards, Chris
Print the post Back To Top
No. of Recommendations: 0
As Chris pointed out, you certainly can contribute to a traditional IRA, but the contribution would not be deductible. (You report this on Form 8606 so the contribution isn't taxed again when it comes out of the IRA.)

If your income for 1999 was under $95,000, do a Roth IRA contribution rather than a nondeductible traditional IRA contribution. Earnings on a Roth are never taxed, as long as you meet the Roth rules.

TMF ExRO
Phil Marti
Print the post Back To Top
No. of Recommendations: 0
Thanks Chris for your response.

Maybe that is part of the confusion. Could it be that I could purchase a Non-Deductible Traditional IRA even though my AGI exceeds $41k and I was participating in a 401K?
I know that I need to move fast. In fact, can you tell me where I could check to see where I could open an IRA besides Fidelity,Janus etc.?
Let me share with you my present situation:

I worked the entire year 1999 made less than $60K and was participating in a 401K.
I quit my job this past Feb and will remain unemployed for the rest of this year,in order to keep my tax bracket at 15%, in order to pay my Capital Gains at 10% vs 20% since I will be generating some capital gains.

So, I would like to open a deductilbe Traditional IRA (1999) in order to reduce what I owe to the IRS.
Convert it into a ROTH (during 2000) since my income will be around $25K AGI.

Open a ROTH (FOR Year 2000)

Roll Over my existing 401K to a ROLL OVER IRA ( I can stay on my existing 401K, since I have >$5k but would rather move it since I could have a broader choices of Funds elsewhere right?

Does this makes any sense to you?
I was considering opening an IRA in Janus Growth Funds. Do you have any other places that I could look into?

I hope I didn't make this too complicated.

Thanks a lot

Larry
Print the post Back To Top
No. of Recommendations: 0
Phil
Thanks for the hint. However, what would be the benefit opening a Non-Deductible Traditional IRA vs a ROTH IRA? Other than the obvious tax deductions etc?
Print the post Back To Top
No. of Recommendations: 0
<< Thanks for the hint. However, what would be the benefit opening a Non-Deductible Traditional IRA vs a ROTH IRA? Other than the obvious tax deductions etc? >>

I also read your response to Chris. Since you made over $41,000 in 1999 and were covered by a 401(k) during 1999, you cannot make a deductible IRA contribution for 1999. You can make a nondeductible traditional or Roth IRA contribution.

If you make a 1999 traditional contribution and then convert to Roth in 2000, you will pay tax on the earnings to the date of conversion. If you make the 1999 contribution to the Roth in the first place, you will never pay tax on the earnings. It's a no-brainer--do the Roth.

As for your idea of rolling your 401(k) into a traditional IRA, that is sound. You can then convert all or a portion of it to Roth in 2000, when your income will be low. Be aware that you don't want to use 401(k) money to pay the tax on the conversion income--that defeats the purpose. There is also the loss of "conduit" status when you convert, but that's all stuff you'll have time to contemplate in 2000.

The biggie is the Roth contribution, which must be done by 4/17/2000.

TMF ExRO
Phil Marti
Print the post Back To Top
No. of Recommendations: 0
Thank you very much for your suggestion. Yes, I am on my way to open my ROTH account tomorrow.

Print the post Back To Top