0

Hi I'd like to know what I should do with a IRA I have through an online broker that I am currently not making any contributions to.

My contributions are currently going to my employer's 401k to which they will match 100% of 3% of my salary and 50% after up to 5%.

I also want to focus on opening a roth and try to max that out to avoid paying taxes later.

Between the two above goals, I will have no more income to contribute at least in the meantime.

The IRA has less than 5k USD in it and is invested in 14 mutual funds with no fees (and a bit of gold stock)

I guess this question is one of strategy? Should I take the IRA to a financial advisor and have them pair down on the funds? Should I roll it over to a roth and pay the ~1k in taxes? Should I just let it sit and come back to it when I have more income to contribute?

I'm 26 now and am not satisfied with the little money I've saved in this area so far which I why I'm focusing on the employer match and roth.

1

You have many options, and there is no one-size-fits-all recommendation.

You can contribute to your IRA in addition to your 401(k), but because you have that 401(k), it is not tax-deductable. So there is little advantage in putting money in the IRA compared to saving it in a personal investment account, where you keep full control over it.

It does, however, open the option to do a backdoor-rollover from that IRA to a Roth IRA, which is a good idea to have; you will not pay any taxes if you do that conversion, if the money in the IRA was not tax deducted (which it isn't as you have the 401(k)).

You can also contribute to a Roth IRA directly, if you are under the income limits for that (193k$ for married, I think, not sure for single). If this is the case, you don't need to take the detour through the IRA with the backdoor-rollover. Main advantage for Roth is that gains are tax free.

There are many other answers here that give details on where to save if you have more money to save. In a nutshell,

  1. Max out your 401(k) where the employer matches something
  2. Max out your IRA or Roth IRA contributions
  3. Max out your 401(k) even if unmatched
  4. Save in other places.

In between is 'pay off all high-interest debt', I think right after 1. - if you have any. 'High-Interest' means anything that costs more interest than you can expect when investing.

  • I rolled over a previous 401k into the traditional IRA I'm talking about, thus I had this before my current employer's 401k offering. I still would have to pay taxes on the gains and contributions no ? – gwar9 Jul 8 '17 at 19:00
  • @gwar9: yes. If you have tradIRA(s) containing 401k (pre-tax) money, and/or contributions you did deduct, and you convert that to Roth you pay tax (at ordinary rates) on it. If you add nondeducted (post-tax) contributions as described and then convert, it is taxed except for the nondeducted contributions (basis); if you convert only part of the balance, the basis is allocated pro rata, but for 5k that's not worth the bother. – dave_thompson_085 Jul 9 '17 at 23:05
  • Another option is to rollover the pre-tax Traditional IRA money to his Traditional 401(k), if allowed by the 401(k) plan. One reason why the OP might want to do this is if the OP wants to do backdoor Roth IRA contributions (because his income is too high for regular Roth IRA contributions), and as the OP has said in comments, he has pre-tax money in his Traditional IRA, which will mess up the backdoor Roth IRA contributions. – user102008 Jul 22 '17 at 7:08

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.