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401K and IRA for myself and spouse

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  • 401K and IRA for myself and spouse

    Can't wait for the financial webinar series to become available for purchase. In the meantime, I just need some simple clarity. Situation ... 48yo private MD in a LLC with current income $500K. Wife is stay-at-home-mom. I contribute $54K yearly to 401K and invest the rest in a taxable account. Kids 529 plans are funded.

    1.  I have never thought of opening a traditional IRA and funding it yearly ($5500) but I CAN do this even with my 401K and the investments inside will grow tax free until funds are taxed at my fed rate when removed (although I CANNOT deduct this amount ($5500) from my taxes as I could if I did not have the 401K), correct?

    2.  Once funded I could then follow the backdoor Roth IRA steps for myself (even with my 401K) without penalty or taxes, correct?  These proceeds will grow tax free inside of the Roth AS WELL as are tax free when removed at retirement, correct?

    3. I have never opened a traditional IRA for my wife since she did not work, however I can open a traditional IRA and fund that yearly ($5500, although this is nondeductible) ) and then convert that to a backdoor Roth IRA without penalty or taxes?

    I really appreciate WCI as I have taken poor financial advice years ago and have never thought of owning a Roth or spousal IRA since I am the breadwinner with a 401K.  TIA !!!

  • #2
    Great job on a first time post!  You have it down.  Since you haven't already contributed for 2017, you could make one contribution of $5,500 for each of you for the 2017 tax year, up until April 17th, and and another $5,500 contribution for the 2018 tax year.  Once you are age, 50 these annual contribution limit increases to $6,500 per year.

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    • #3
      Yes, you can backdoor rIRA. Read the blog post.

      Your salary = your wife's. She is therefore eligible.

      Comment


      • #4
        3 yes to your questions. Something else to look at is if you are eligible for an HSA and use it as a stealth IRA. Feel free to search for it on the WCI website if you don't know what I am talking about.

        Comment


        • #5
          On #3, we are assuming your wife d/n/h a pre-tax TIRA from a prior job - correct? If she does, the pro-rata rule comes into play. If not, then you're good to go, as advised above.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6




            Can’t wait for the financial webinar series to become available for purchase. In the meantime, I just need some simple clarity. Situation … 48yo private MD in a LLC with current income $500K. Wife is stay-at-home-mom. I contribute $54K yearly to 401K and invest the rest in a taxable account. Kids 529 plans are funded.

            1.  I have never thought of opening a traditional IRA and funding it yearly ($5500) but I CAN do this even with my 401K and the investments inside will grow tax free until funds are taxed at my fed rate when removed (although I CANNOT deduct this amount ($5500) from my taxes as I could if I did not have the 401K), correct?

            2.  Once funded I could then follow the backdoor Roth IRA steps for myself (even with my 401K) without penalty or taxes, correct?  These proceeds will grow tax free inside of the Roth AS WELL as are tax free when removed at retirement, correct?

            3. I have never opened a traditional IRA for my wife since she did not work, however I can open a traditional IRA and fund that yearly ($5500, although this is nondeductible) ) and then convert that to a backdoor Roth IRA without penalty or taxes?

            I really appreciate WCI as I have taken poor financial advice years ago and have never thought of owning a Roth or spousal IRA since I am the breadwinner with a 401K.  TIA !!!
            Click to expand...


            As a 48 year old with $500k net you can also open a Cash Balance plan in addition to your 401k plan, and you can make a total contribution of about $160k (more if the spouse is on payroll).  If you have no staff, that's an easy choice, and even if you do have staff, % to owner with a Cash Balance plan is usually much higher than with just the 401k plan. You can also make a higher Roth contribution into your 401k plan if you can get a high tax deduction for the Cash Balance plan, or simply maximize your tax-deferred contribution.
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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            • #7
              I just transferred money to a Vanguard MMA to fund my first back door Roth. I would like to do the same for my spouse and I have read the White Coat Investor's tutorial on this. My concern is that she is employed full time and some of what I have read leads me to believe that I could only contribute to a spousal IRA/Backdoor Roth if she is not employed. Is that correct?

              Comment


              • #8




                I just transferred money to a Vanguard MMA to fund my first back door Roth. I would like to do the same for my spouse and I have read the White Coat Investor’s tutorial on this. My concern is that she is employed full time and some of what I have read leads me to believe that I could only contribute to a spousal IRA/Backdoor Roth if she is not employed. Is that correct?
                Click to expand...


                What? No.

                Any income from the collective marriage counts.

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                • #9
                  Thanks Peds

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