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  • No pension/401k offered by employer

    My husband is a salaried ortho doc in his first of two years toward becoming partner. The small private practice has no pension or 401k plan available to employees (said they may have one soon). We refinanced 309k of student loans with earnest at 2.98% and are paying 5700 a month toward those loans to be paid off in 5 years. We want to invest/save for retirement in the meantime and with no pension plan am not sure where to put the additional 2k a month we have to spare. Is this the correct order: 1. max traditional ira for each us 2. max out backdoor roth? Or is there another better option? Also, to do a backdoor roth do we put 6k in a traditional, convert it, and then put an additional 6k in as our traditional ira investment? At tax time does it show that we put 12k into the traditional or just the 6? Don't want to do it wrong/get in trouble. Hope this made sense! Please and thanks for the help!

  • #2
    read: https://forum.whitecoatinvestor.com/...-ira-home-base

    Comment


    • #3
      Are you yourself covered by a retirement plan through your work? You'll either want to do a traditional IRA if it's fully deductible or backdoor Roth IRAs (can't do both). IRS rules on deductibility of IRA contributions based on retirement plans are here:

      https://www.irs.gov/retirement-plans...duction-limits

      Comment


      • #4
        Don’t overthink (or over-worry) this. A taxable account is a great retirement vehicle until a tax deductible account is available. I imagine you’ll have that, too, within a year or two. Your future FI self will thank me.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5
          Originally posted by orthowife View Post
          1. max traditional ira for each us 2. max out backdoor roth? Or is there another better option? Also, to do a backdoor roth do we put 6k in a traditional, convert it, and then put an additional 6k in as our traditional ira investment? At tax time does it show that we put 12k into the traditional or just the 6? Don't want to do it wrong/get in trouble. Hope this made sense! Please and thanks for the help!
          You can't max out both a traditional IRA and a Roth IRA, it's one or the other. And (assuming you're filing as married, filing jointly) your combined income is certainly too high to contribute directly to a Roth IRA . Assuming you don't have any money in traditional IRAs, SEP IRAs, or SIMPLE IRAs right now, your best bet is to contribute $6,000 to a Roth IRA for each of you (that's $12,000 total) via the back door method. You each have to have your own, separate traditional and Roth IRA accounts in order to do this, as there are no joint IRAs. Each IRA account belongs to only one person, so you each need your own. And the traditional and Roth IRA accounts need to be at the same brokerage, to facilitate the conversion - although it would be fine for you to have your traditional IRA and Roth IRA accounts at one brokerage and your husband's traditional and Roth IRA accounts at a different brokerage. Then put anything more you wish to save/invest into a taxable account.

          Don't worry, you'll get the hang of this!

          Comment


          • #6
            Originally posted by jhwkr542 View Post
            Are you yourself covered by a retirement plan through your work? You'll either want to do a traditional IRA if it's fully deductible or backdoor Roth IRAs (can't do both). IRS rules on deductibility of IRA contributions based on retirement plans are here:

            https://www.irs.gov/retirement-plans...duction-limits
            No I stay home with the kids/unemployed. So I see that it would be fully deductible but we file "married filed jointly" and so far have always done the standard deduction--nothing else to itemize except paying off student loans and retirement---so does that mean we should just keep it in the traditional IRA or should we go ahead and do the backdoor Roth?

            Thanks for your help!

            Comment


            • #7
              Originally posted by orthowife View Post

              No I stay home with the kids/unemployed. So I see that it would be fully deductible but we file "married filed jointly" and so far have always done the standard deduction--nothing else to itemize except paying off student loans and retirement---so does that mean we should just keep it in the traditional IRA or should we go ahead and do the backdoor Roth?
              Do you currently have money in traditional IRAs? If so, how much?

              If either of you already have money in traditional IRAs, the backdoor is closed to you until you either roll those IRAs into a 401k/403b (not possible for yours, since you're currently not working) or until you do a Roth IRA conversion and pay the taxes that will be owed. Whether the latter is a good choice depends on how much tax you'll end up owing on the conversion.

              Comment


              • #8
                Originally posted by orthowife View Post

                No I stay home with the kids/unemployed. So I see that it would be fully deductible but we file "married filed jointly" and so far have always done the standard deduction--nothing else to itemize except paying off student loans and retirement---so does that mean we should just keep it in the traditional IRA or should we go ahead and do the backdoor Roth?

                Thanks for your help!
                I'd take the deduction unless you're certain they'll have a 401k plan soon. Doing a conversion in your highest tax bracket generally isn't ideal.

                Comment


                • #9
                  I was a teacher before staying home so I have money in a Roth and a 403b and my husband has a sep ira, a traditional ira (85k), and a Roth from residency and fellowship. He is in his first two years of practice so we actually may NOT be in our highest tax bracket if that changes anything. I did NOT have a traditional IRA...so does that mean I should open one and do a Roth conversion? Or should we both just put 6k in the traditional and leave it? If his practice starts a 401k prior to tax day then we should put all our spare money into that and none into the traditional ira correct?

                  Comment


                  • #10
                    Originally posted by orthowife View Post
                    I was a teacher before staying home so I have money in a Roth and a 403b and my husband has a sep ira, a traditional ira (85k), and a Roth from residency and fellowship. He is in his first two years of practice so we actually may NOT be in our highest tax bracket if that changes anything. I did NOT have a traditional IRA...so does that mean I should open one and do a Roth conversion? Or should we both just put 6k in the traditional and leave it? If his practice starts a 401k prior to tax day then we should put all our spare money into that and none into the traditional ira correct?
                    Search "Pro rata rule" in google and you'll see that the SEP IRA and traditional IRA complicate the backdoor Roth. WCI has a post about the options on what to do about this. Basically you'll have to decide what is best for you (i.e. pay tax man now to be able to do backboor Roth or just invest in taxable as JFox said above).

                    Comment


                    • #11
                      Originally posted by orthowife View Post
                      I was a teacher before staying home so I have money in a Roth and a 403b and my husband has a sep ira, a traditional ira (85k), and a Roth from residency and fellowship. He is in his first two years of practice so we actually may NOT be in our highest tax bracket if that changes anything. I did NOT have a traditional IRA...so does that mean I should open one and do a Roth conversion? Or should we both just put 6k in the traditional and leave it? If his practice starts a 401k prior to tax day then we should put all our spare money into that and none into the traditional ira correct?
                      For you, I'd do traditional IRA and then convert to Roth IRA. This would allow you to do backdoor Roth contributions in the future if your husband's practice gets a 401k. For your husband, I'd contribute to the IRA and get the deduction. He has other IRA moneys preventing him from doing the backdoor Roth anyways. Hopefully his practice starts a 401k and that 401k allows rollovers.

                      Comment


                      • #12
                        Originally posted by TXDoc21 View Post

                        Search "Pro rata rule" in google and you'll see that the SEP IRA and traditional IRA complicate the backdoor Roth. WCI has a post about the options on what to do about this. Basically you'll have to decide what is best for you (i.e. pay tax man now to be able to do backboor Roth or just invest in taxable as JFox said above).
                        Small clarification for other readers (not forTXDoc21 as I am comfortable s/he is aware): there are 3 tax buckets for TIRAs -
                        • deducted (no basis),
                        • nondeductible (has basis that carries from TIRA contribution), and
                        • growth on nondeductible (no basis due to growth on an original TIRA contribution with basis. This is the worst of both worlds, impo.
                        So, having a TIRA is not the problem: it is having a TIRA with no basis and/or growth on the no-basis TIRA.

                        I used to think this was a fairly easy and obvious concept but the more permutations of questions and comments on this forum, the more I realize how difficult it can be and appear. Honestly, it has also difficult for all new team members at Fox CPA in the last 2 yrs, as they have never dealt with these issues, either. This is not because they are lacking in learning or have below-avg intelligence (aptitude testing is our step 2 after reviewing experience and the resume’). It’s b/c bd Roths are not a consideration at “traditional” CPA firms; 99% of doctors are clueless about them, so there’s no need to recommend and then have to educate them. Iow, you’re in good company.
                        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13
                          Yes it seems that with wealthfront if we put 6k into my husbands who already has money in his traditional...that our only option is to convert the WHOLE thing...but since I just opened one for the first time I can just convert my 6k.

                          So leave 6k in his traditional ira and convert my traditional ira 6k to a Roth? Or convert his whole traditional ira? Or just leave both of ours in a traditional IRA?

                          Here is the part I think I definitely messed up the more I looked...wealthfront has our checking account linked to our wealthfront account so when I funded each of our traditional IRAS I did it through our checking account...my brother thinks that I just double taxed myself by not reaching out to my husband's employer and doing it through his work with pretaxed money? If that's true (is it?) then how do I fix this? Looked it up and do I just make sure I file a form 8606 this year to show that it was after taxed money? Did I totally screw up??!!! I thought the whole thing was that his employer didn't help with retirements/investments... this is easy for ya'll but not for me and I so appreciate the help.

                          Why is a 401k so much better than a traditional IRA?

                          Also, the 85k in his traditional ira came from when we wanted all of our money in one place so we transferred all his 403bs from various places into the wealthfront traditional ira so that we could see all of our money...did we mess up there as well? Should we just have kept the 403bs in those random places?

                          Wondering how many mistakes we've already made........

                          Comment


                          • #14
                            Originally posted by orthowife View Post
                            Yes it seems that with wealthfront if we put 6k into my husbands who already has money in his traditional...that our only option is to convert the WHOLE thing...but since I just opened one for the first time I can just convert my 6k.

                            So leave 6k in his traditional ira and convert my traditional ira 6k to a Roth? Or convert his whole traditional ira? Or just leave both of ours in a traditional IRA?

                            Here is the part I think I definitely messed up the more I looked...wealthfront has our checking account linked to our wealthfront account so when I funded each of our traditional IRAS I did it through our checking account...my brother thinks that I just double taxed myself by not reaching out to my husband's employer and doing it through his work with pretaxed money? If that's true (is it?) then how do I fix this? Looked it up and do I just make sure I file a form 8606 this year to show that it was after taxed money? Did I totally screw up??!!! I thought the whole thing was that his employer didn't help with retirements/investments... this is easy for ya'll but not for me and I so appreciate the help.

                            Why is a 401k so much better than a traditional IRA?

                            Also, the 85k in his traditional ira came from when we wanted all of our money in one place so we transferred all his 403bs from various places into the wealthfront traditional ira so that we could see all of our money...did we mess up there as well? Should we just have kept the 403bs in those random places?

                            Wondering how many mistakes we've already made........
                            Everything is fine. I'd leave his in his IRA to get the deduction in your presumably high tax bracket. I would not convert his whole IRA. If he continues to not have a retirement account, then continue doing this. You could leave yours in a traditional account, but if he ever gets access to a retirement account at work, you won't be able to deduct your IRA contribution and won't be able to do backdoor Roth contributions without converting and paying taxes on your prior deductible traditional IRA contributions and the growth.

                            Your brother is flat wrong. None of what he told you is correct. You claim the deduction on line 19 of your 1040 using schedule 1. If you convert your traditional IRA, then you'll need to file form 8606 for you as well. It's only a mistake if you don't file the correct paperwork to take the deduction AND don't file 8606 to create a basis for your nondeductible contribution and pay taxes on the conversion.

                            A 401k has much higher limits than an IRA. Most docs have 401ks that allow them to contribute $19,500 each year and then be able to do a backdoor Roth. When you have access to a 401k through your employer, your traditional IRA deductibility becomes quite limited. But at physician income levels, we can't directly contribute to a Roth IRA. So we make nondeductible traditional IRA contributions and immediately convert to a Roth IRA and file form 8606 to show our basis of $6k so there's no tax on the conversion.

                            No, I don't think it was a mistake to move the 403b money to an IRA. Hopefully, your husband's practice starts a 401k that allows incoming rollovers. Most do, but not a requirement.

                            Or your husband could get a side gig, open a 401k to allow for larger deductible contributions and a rollover of his IRA money, and you two would then be doing backdoor Roths. Clear as mud?

                            Comment


                            • #15
                              Originally posted by jhwkr542 View Post

                              Everything is fine. I'd leave his in his IRA to get the deduction in your presumably high tax bracket. I would not convert his whole IRA. If he continues to not have a retirement account, then continue doing this. You could leave yours in a traditional account, but if he ever gets access to a retirement account at work, you won't be able to deduct your IRA contribution and won't be able to do backdoor Roth contributions without converting and paying taxes on your prior deductible traditional IRA contributions and the growth.

                              Your brother is flat wrong. None of what he told you is correct. You claim the deduction on line 19 of your 1040 using schedule 1. If you convert your traditional IRA, then you'll need to file form 8606 for you as well. It's only a mistake if you don't file the correct paperwork to take the deduction AND don't file 8606 to create a basis for your nondeductible contribution and pay taxes on the conversion.

                              A 401k has much higher limits than an IRA. Most docs have 401ks that allow them to contribute $19,500 each year and then be able to do a backdoor Roth. When you have access to a 401k through your employer, your traditional IRA deductibility becomes quite limited. But at physician income levels, we can't directly contribute to a Roth IRA. So we make nondeductible traditional IRA contributions and immediately convert to a Roth IRA and file form 8606 to show our basis of $6k so there's no tax on the conversion.

                              No, I don't think it was a mistake to move the 403b money to an IRA. Hopefully, your husband's practice starts a 401k that allows incoming rollovers. Most do, but not a requirement.

                              Or your husband could get a side gig, open a 401k to allow for larger deductible contributions and a rollover of his IRA money, and you two would then be doing backdoor Roths. Clear as mud?

                              First of all-THANK YOU SO MUCH FOR YOUR TIME! What a relief. You got my stomach out of knots!

                              We are in the 35% bracket and may eventually be in the 37% bracket.
                              It seems after further probing that he definitely will have a 401k at some point either this tax year or next.

                              To summarize your advice:

                              If he gets it this year/tax season--->I should convert my traditional to ROTH
                              If he gets it next year--->ALSO convert it to ROTH?
                              If for some reason he never gets a 401k--->leave it in my traditional ira
                              leave his in traditional ira no matter what

                              It is okay that I used money from our bank account to fund the traditional IRA and I didn't "double tax us" as long as I tell my accountant what you told me "You claim the deduction on line 19 of your 1040 using schedule 1. If you convert your traditional IRA, then you'll need to file form 8606 for you as well. It's only a mistake if you don't file the correct paperwork to take the deduction AND don't file 8606 to create a basis for your nondeductible contribution and pay taxes on the conversion."

                              In the future with a 401k we put 19,500 and then another 6k for each of us in a backdoor ROTH ----if this is not enough to support us in retirement-what do we do next? I saw that I could somehow start my own business and open a sep ira where we could contribute a lot more. Is this the route lots of stay at home dr wives take while raising kids? Do part time jobs ever allow one to use their retirement plans?

                              If my husband's business opens the 401k are you saying we should rollover the traditional ira money into that 401k? Is that what you mean by "incoming rollovers"?

                              Random, but since you know everything and are awesome...We have an HSA that we maxed out (we knew we were having twins this year/lots of high risk dr. visits)--I just got the itemized receipt from the hospital---I should go ahead and use the money thats in our HSA correct? From what I read some drs use it later as investing tools but we aren't at that level yet (stud loans arent paid off retirements arent maxed out etc) right?

                              Thanks again!

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