Traditional IRA worth it?

[drwifeworkingmom]

Our situation is that my husband is currently a 4th year student, I am working full time with an income of about $100k. After filing for an extension we just recently got a nice tax return back and I am wanting to get our IRA contribution(s) taken care of for 2017 (yay for not doing it in April for the first time ever). My husband recently introduced me to WCI and I am a big fan, but still have a lot to learn. In the past (when we could afford it) I would contribute to a traditional IRA, and make a contribution for my husband to a Roth in order to diversify and benefit from the tax deductions of a traditional IRA. I am hearing more and more about Roths and wondering if we should both be contributing the full amount to Roths and leave the traditional alone. Although, it is still nice at this phase of life and medical school journey to get the tax deduction from the traditional IRA. I do have a retirement account (401k) through my work, but honestly have done very little managing of it and don't know much about it, but planning to get a better understanding of that as my next step. Any advice on what scenario a traditional IRA makes sense, other than to make a backdoor Roth contribution, (which we don't need at this point since we won't be meeting the income limits for 2017).

[FIREshrink]

Are you eligible to make deductible IRA contribtions when you have access to a 401k at work and make $100k per year?

[jfoxcpacfp]

drwifeworkingmom wrote:

Any advice on what scenario a traditional IRA makes sense, other than to make a backdoor Roth contribution, (which we don’t need at this point since we won’t be meeting the income limits for 2017).

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A deductible TIRA makes the most sense when you have high income and one or both spouses have no retirement plan at work.

Considering where your tax bracket is going, I'd probably opt for the Roth and spousal Roth IRAs.

[Peds]

No. Do the 401k first and then rIRA. You'll want a cleaner slate for future backdoor conversions.

[jfoxcpacfp]

Peds wrote:

No. Do the 401k first and then rIRA. You’ll want a cleaner slate for future backdoor conversions.

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@Peds makes a good point and I see now that my response c/b misconstrued. To clarify, I was not recommending a deductible TIRA, just giving an answer to the request by OP re: what scenario a TIRA makes sense.

[adventure]

drwifeworkingmom wrote:

I do have a retirement account (401k) through my work, but honestly have done very little managing of it and don’t know much about it,

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Do this first.

Learn about it, contribute more to it, learn which fund(s) options you may have (ask if you have questions). When you know how much, % of earnings go to this, what employer march (if any) is available and currently used, which funds, why, how to login, update, track for net worth purposes then you can better make the other decisions (Roth, ira, taxes, etc etc).

 

[DMFA]

At that income, you should do Roth IRA for both of you and use your 401(k) for any additional savings.

[drwifeworkingmom]

@peds unfortunately I already have about $45k in the traditional IRA, so no clean slate, but we'll cross that bridge next year so that we are set up to do the backdoor Roth in 2019. @jfoxcpacfp I understood what you were saying by answering my question...thank you!

I went ahead and contributed the full amount to MY Roth IRA yesterday. Our IRAs are invested well and growing nicely. Going to get through interview season and contribute to my drh's by tax day.

@adventure I took some time today to look into my 401k, the good news is that my employer matches! Bad news is that I have never taken the time to learn about it or look at it and it was invested badly and I have not been contributing the max $18,000. I changed to a different investment and am going to try to catch up as much as reasonably possible by end of year.

[GXA]

With your husband a 4th year student, I suspect your income will rise next year and the following year.  Would this be an opportunity to convert your traditional IRA to a Roth?  You would owe some taxes, however your tax rates will be higher in the future, and you will then have a "clean slate".

[drwifeworkingmom]

I hadn't thought of that @GXA! I was planning on rolling it over to a 401k next year...but this idea was based on a very basic and new understanding of how backdoor Roths work. What are the pros and cons of rolling it over to a Roth now or doing a 401k next year? This year's income is expected to be about 100k (although after realizing that I've only contributed about $4000 to my 401k so far this year I am going to try to "catch up" as much as possible, so that may bring it down a few thousand), next year will be about $125 (I am guessing with about half of a 1st year residency salary) but next year we are planning on both maxing out our 401ks (hopefully he will get one with his residency program, if not we will look into how else to accomplish this). Help me understand!