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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Fri Dec 07, 2012 1:47 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Part I and II of form 8606 confirms SEP-IRA's are part of the calculation when doing a non-deductible tIRA conversion to Roth IRA.

http://www.irs.gov/pub/irs-pdf/f8606.pdf

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Tue Dec 11, 2012 10:43 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
I am under the impression that 401(k)s and 403(b)s lower AGI for the purpose of determining if one is eligible to contribute (directly) to a Roth. The OP may be close enough for that to make a difference. (And it could be an additional reason to contribute to a mediocre 403(b) - though not an abusively terrible one.)

Another option I read about recently was the idea of converting a portion of traditional IRA into a Roth as a way of "contributing" the amount that you pull from taxable assets to pay the tax on the conversion.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Tue Dec 11, 2012 11:32 am 

Joined: Fri May 04, 2012 2:23 pm
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That's a good catch Stan.

The way I see the OP's "rough" above the line taxes is ~$230k. less "employer's half" of FICA ($7k), less SEPIRA ($33k), and perhaps a few other things. This brings them down to approx $190k, need to get to $179k. OP's wife may can do a "backdoor", but OP can't without bringing in entire SEP-IRA.

IF OP is single employee, it would probably be best that he start a solo 401k rather than SEP-IRA. Fidelity takes rollovers from SEP's. Or, can do solo 401k which allows Roth contributions. SEP-IRA offers nothing over the solo 401k, but solo 401k offers things SEP-IRA doesn't. JMO.

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Tue Dec 11, 2012 1:08 pm 

Joined: Tue Oct 20, 2009 11:43 am
Posts: 26
Bichon Frise wrote:
You should be realistic about whether your wife will go back to work or not. You should also approach the topic carefully with your wife, as very few modern day american women like to be told to do anything when it comes to their career. BUT, just from observations, many women say they want a career and want to continue to work, but a significantly smaller number continue to say so once their first child pops out. And my guess is, even more, would opt to stay at home with the baby if they could more or less maintain their current lifestyle, even if it means delaying the retirement plan(s) of their spouse. But, some also find value in going to work, and there is nothing wrong with that either.

Just be prepared for that. As I have watched numerous friends who thought they wanted to have a career throw it to the wayside for the children. My personal favorite was my friend who wanted to be a lawyer and her husband worked hard to put her through law school doing construction. Once the first kid came, he was back to doing construction.


You are absolutely right about this and has been a frequent topic of conversation. She can take up to two years off of work and they will hold her possition for her which is nice. At this time we both agree that it wouldn't be wise for her to give up her career completely...once the kids start going to school her teaching job would be the ideal job to have...same hours as the kid/s. Plus her pension and retiree healthcare benefits are way to valuable to just give it up like that and both of us agree that having just my income (self-employed) would probably be more risk to take on than we would like.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Tue Dec 11, 2012 1:12 pm 

Joined: Tue Oct 20, 2009 11:43 am
Posts: 26
Bichon Frise wrote:
That's a good catch Stan.

The way I see the OP's "rough" above the line taxes is ~$230k. less "employer's half" of FICA ($7k), less SEPIRA ($33k), and perhaps a few other things. This brings them down to approx $190k, need to get to $179k. OP's wife may can do a "backdoor", but OP can't without bringing in entire SEP-IRA.

IF OP is single employee, it would probably be best that he start a solo 401k rather than SEP-IRA. Fidelity takes rollovers from SEP's. Or, can do solo 401k which allows Roth contributions. SEP-IRA offers nothing over the solo 401k, but solo 401k offers things SEP-IRA doesn't. JMO.


I will have to look into a solo 401k. I do have a few partners and a few employees so not sure how that would work. I am pretty sure I opened up the SEP IRA years ago based on my accountants recommendation.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Thu Dec 13, 2012 2:51 am 

Joined: Tue Aug 21, 2012 12:28 am
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Location: USA
I think you should max out your contribution limit to get all the benefits of 401k retirement plan. To get more details you can also visit
http://www.401kgps.com/contribution-limits.aspx

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Thu Dec 13, 2012 8:01 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
cusetownusa wrote:
Bichon Frise wrote:
That's a good catch Stan.

The way I see the OP's "rough" above the line taxes is ~$230k. less "employer's half" of FICA ($7k), less SEPIRA ($33k), and perhaps a few other things. This brings them down to approx $190k, need to get to $179k. OP's wife may can do a "backdoor", but OP can't without bringing in entire SEP-IRA.

IF OP is single employee, it would probably be best that he start a solo 401k rather than SEP-IRA. Fidelity takes rollovers from SEP's. Or, can do solo 401k which allows Roth contributions. SEP-IRA offers nothing over the solo 401k, but solo 401k offers things SEP-IRA doesn't. JMO.


I will have to look into a solo 401k. I do have a few partners and a few employees so not sure how that would work. I am pretty sure I opened up the SEP IRA years ago based on my accountants recommendation.


most likely, you can't have a solo 401k for that business if you have employees (1099 should be ok) and partners other than your spouse. BUT, if you had another business where it was just you and your spouse, nothing stops you from opening a solo 401k for that business....

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Wed Dec 19, 2012 8:50 am 

Joined: Tue Oct 20, 2009 11:43 am
Posts: 26
Just wanted to provide and update.

I met with my wife's 403B advisor from ING last night. First thing I learned about 403b's is that we can't just make contributions to the plan whenever we want ( i am used to my SEP IRA)...has to be set up through payroll. So maxing out the 403b for 2012 isn't an option.

Second thing I learned is that the fees are pretty high...took a bit for me to get full disclosure on the fees as they aren't mentioned anywhere and when he talks about fees he only talks about the Fund management fee...conveniently leaving out the fact that ING charges an additional 1.1% on top of everything. So on average all the fund options available carry a fee in the range of 1.7% to 2% for what I could gather. No upfront loads or surrender charges.

Now he does a good job of showing me the morningstar reports that show how the ING funds have outperformed the S&P 500 Index over the last 10 years (net of fees and expenses). However, I just find it hard to believe that investment funds that carry approx 2% in fees will outperform simple index fund porfolio with fees that are below .2%.

So at the end of the day I am torn as to whether I should be contributing to the 403b. I am currently leaning towards just setting up a taxable investment account through Vanguard and invest their instead and just stick to maxing out my SEP IRA. The con of doing this is obviously not getting the upfront tax break...however, this would provide me more liquidity if needed, lower fees, more control over my investments, etc.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Wed Dec 19, 2012 9:47 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
That sounds terrible enough to be not worth investing in.

Is that the only option? Sometimes an employer offers multiple 403(b) plans. Or allows multiple companies to offer plans to their employees. My wife had her choice amongst a double digit number of 403(b) providers, most of which were terrible, but did include Vanguard and another decent option or two.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Wed Dec 19, 2012 9:56 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
The real question, or missing piece to the puzzle, is what will your wife do in the future? Well, the other missing piece is what your goals are. But, if your wife only truly believes she will work for another 5-10 years, perhaps the 403b isn't so bad. You suck up the high fees for the initial years, and then you rollover when she quits. So, it isn't optimal, but you then have some funds now in your control in an IRA. The other thing is if you plan to retire early, what is your plan for funding until you can tap your tax-advantaged accounts? Albeit, there are rules in the IRC which allow for withdrawals, but what's your plan?

Finally, does her plan allow for rollovers while she is still in service? A longshot, but not unheard of.

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Wed Dec 19, 2012 10:03 am 

Joined: Tue Oct 20, 2009 11:43 am
Posts: 26
stannius wrote:
That sounds terrible enough to be not worth investing in.

Is that the only option? Sometimes an employer offers multiple 403(b) plans. Or allows multiple companies to offer plans to their employees. My wife had her choice amongst a double digit number of 403(b) providers, most of which were terrible, but did include Vanguard and another decent option or two.


There were others but they were just as bad if not worse...no Vanguard, no Fidelity.

Most of the others were loaded funds (4-6% upfront) and/or had steep surrender fees.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Wed Dec 19, 2012 10:09 am 

Joined: Tue Oct 20, 2009 11:43 am
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Bichon Frise wrote:
The real question, or missing piece to the puzzle, is what will your wife do in the future? Well, the other missing piece is what your goals are. But, if your wife only truly believes she will work for another 5-10 years, perhaps the 403b isn't so bad. You suck up the high fees for the initial years, and then you rollover when she quits. So, it isn't optimal, but you then have some funds now in your control in an IRA. The other thing is if you plan to retire early, what is your plan for funding until you can tap your tax-advantaged accounts? Albeit, there are rules in the IRC which allow for withdrawals, but what's your plan?

Finally, does her plan allow for rollovers while she is still in service? A longshot, but not unheard of.


She plans on sticking it out until age 55 (when full pension and retiree healthcare benefits kick in)...for each kid she can take up to 2 years off while they hold her position. Most likely she won't use all of that time.

Also, no rollovers while still in service.


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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Thu Dec 20, 2012 8:10 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
rock, I'd like you to meet hard place.

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Thu Dec 20, 2012 10:51 am 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 961
Does she have access to a 457?

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 Post subject: Re: Should I max out all tax deferred accounts?
PostPosted: Fri Dec 21, 2012 9:55 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
I came across a blog post with a link to a post with a link (I can only put one link in this post) to a spreadsheet that can help you decide if it's better to invest in a bad 401(k) or 403(b) or in a taxable account:
https://public.sheet.zoho.com/public/thefinancebuff/401kortaxable


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