My consulting business did well enough this year that I had a bit of money due to the IRS. I planned on setting up an IRA this year since I’m in my mid-twenties. I like the tax-free potential of the Roth, but I also need to lower my AGI this year. Would it make sense to open and contribute a portion of my wages to a traditional account and deduct what I need to break even on taxes, and throw the rest into a Roth account? Not exceeding the $4,000 limit on contributions of course… The fees on the accounts should be negligable, considering that I’m working primarily with an Internet broker.
25% is my current tax bracket.
This is my scenario. I currently have a ROTH IRA. For this and next year I would like to take out a traditional IRA, and in a few years (2010) convert this to my current ROTH IRA. I had read somewhere I thought you can only do a rollover like this one time. Does anyone know the rules on this? Thanks!
Thanks for the answers. I know it’s kind of tricky. I would rather get the tax break now and pay the taxes in a couple of years because of my financial situation. But i would want to do it all at once. For example, rollover the total of all my traditional IRAS into my existing ROTH. Don’t mind paying the taxes at that time, but dont want it counted as a withdrawl and get penalized, etc. I eventually just want it all in one account. I’m just scared there is a catch somewhere ( or will be in 2 or 3 years). Several years ago, they let you do that rollover thing all at once, and I did do it at that time.
To the last response from TBONE. You mentioned in 2010 you can rollover a traditional ira into a roth ira…this is the whole crux of my concern…I know I can roll it into “an IRA” but can I roll it into “an existing IRA” that I had before i started opening up the traditional iras?
Thanks!
Imagine two people starting with 2,000 pre-tax dollars to invest at age twenty-five. The tax rate is a constant 25 %, and the capital gains rate is constantly 15 %.One person invests in the ROTH IRA (for 1,500 dollars because of the tax), and one invests in the Traditional IRA. If the annual rate of return for each investor is 8%, who does better in the end if retirement is age 70, exactly 45 years later?
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