57

A Roth IRA is a great idea. You can only put in as much as you earn (as in, get in paychecks) each year, but that shouldn't be too much of a problem for you right now. You're paying nothing in taxes, or nearly nothing, so you'll have a great opportunity to get some squirreled away in a safe place! And since it's a Roth, you can always withdraw the ...


56

Forget the Roth for one moment. Having a $5500 deduction for your LLC would be great. Parents hire their kids all the time. To do real work at a reasonable wage. Do you have work that's appropriate for the child and would it pass the duck test*? If not, don't do it. (per a request via comment - A duck test - "Is the work real and substantial enough that the ...


53

Unlike others, I do NOT recommend putting your $6k into a retirement fund this early. It's a bad idea.1 If you're overflowing with money after college and don't know what to do with this $6,000 then, you can do the same thing then2 (edit: see below3)—this extra 4-5 years of interest or capital gains really isn't going make or break you, but the penalty and ...


49

According to the link below, it does appear that you must take an RMD, or Required Minimum Distribution, from your IRA at age 70½, or face a 50% penalty of the RMD AMOUNT that has NOT been taken, which is going to be much less than 50% of your entire account balance. Why specifically this happens would be opinion based on my interpretation of the reasoning ...


48

Your question indicates confusion regarding what an Individual Retirement Account (whether Roth or Traditional) is vs. the S&P 500, which is nothing but a list of stocks. IOW, it's perfectly reasonable to open a Roth IRA, put your $3000 in it, and then use that money to buy a mutual fund or ETF which tracks the S&P 500. In fact, it's ridiculously ...


40

There could be a few reasons for this, my first guess is that you didn't report the distribution on your return (indicated on line 15 of your 1040, pictured below), the IRS got a copy of the 1099-R, and assumes it's all taxable (or maybe the 1099-R indicates the full amount is taxable). If a 1099-R doesn't have an amount populated for 'taxable amount' it ...


32

You are misunderstanding the deadlines. The deadline for 2017 contributions is April 15, 2018. And the deadline for 2018 contributions is April 15, 2019. The contribution you made on July 5, 2017 is for tax year 2017. Now that it is 2018, you can make 2018 contributions, and you have until April 15 of next year to do so.


30

First, it's great that you're considering these options at all, and that you're trying to be responsible and forward-thinking about planning for your future. I'm also going to break with the consensus and point out 2 things: $6,000 is better than $0 or being in debt, but it's really not a lot of money. Depending where you live it's "2-4 months' living ...


28

There's no additional income tax burden created when you decide to make Roth IRA contributions, your Roth IRA contributions are taxed at the same time all your income is taxed. If you earned that $100 by working a job, then your employer likely withheld taxes when they paid you. If you earned it through self-employment, then you'll pay estimated taxes on ...


27

You elected to defer paying taxes by contributing to an IRA. Lawmakers simply want to make sure that they collect those taxes by requiring you to either withdraw the money (incurring a tax liability) or pay a penalty (tax).


22

Because Congress said so. Now, if you're asking for the legislators' rationale, it's something along the lines of: We only create tax shelters when we "need" to; otherwise we just make our deficit worse for no reason. Absent a particular need, better to just lower the tax rate in general. It's a national priority that people be able to secure their ...


22

For a Roth IRA, everything withdrawn is tax free as long as you meet the age/time requirements. You are correct that the contributions have been taxed; but the dividends, interest, and growth due to the price of the underlying securities are also tax free. Also note - the key age is 59-1/2 for this to be true. 70-1/2 is when RMDs (required minimum ...


21

American Funds? Also look at their annual expenses. And this is from the AMCAP fund, a "growth fund" in their offering, the expenses over 10 years for a $10,000 investment: To put this in perspective, my 401(k) uses Vanguard, and for their S&P fund, VIIIX, offered only to large companies. It has a .02% expense. On $10,000, that's $2 per year. (1% ...


19

Wow. It's clear I'm outnumbered. When I'm approached with the question (and keep in mind, it's usually a couple data points and little else) "I am getting started, with no other money do I fund a retirement or emergency account?" I often suggest they put the funds into a Roth, in a money market fund, and treat it like an emergency account. If there's in ...


16

From the Joint Committee on Taxation's General Explanation Of The Tax Reform Act of 1986, page 220: Congress concluded that rules that encourage filing separate returns give rise to unnecessary complexity and place an unwarranted burden on the administration of the tax system. Although this section of the document is not about IRAs, this act altered the ...


16

Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is ...


16

If the check was payable to you, you had 60 days to deposit to an IRA. But, it needs to go into the same type of IRA as the 401(k) was. i.e. if the 401(k) was traditional, it goes into a traditional IRA, If 401(k) Roth, it goes into a Roth. The 20% is not the penalty. The penalty is 10% for early withdrawal. The 20% is the tax withholding. If the 401(k) ...


16

One problem with this plan is that the individual must have earned income to contribute to a Roth IRA. If you have an infant, unless she is the new Gerber baby or something like that, there is probably no legitimate way for her to earn income. If you own a business and have kids who are older, you can employ them to do work for you, but they must really do ...


15

No. A deposit to an IRA must be in cash. A conversion from traditional IRA to Roth can be "in kind" i.e. As a stock transfer. Last, any withdrawals can also be in stock or funds. IRS Publication 590, so important, it's now in 2 sections Part A and Part B, addresses IRA issues such as this as well as most others. By the way - now on page 7 - "...


15

I agree with the other answers that it is a benefit, but wanted to add another explanation for this: Also, why a company would prefer matching someone's contributions (and given him or her additional free money) instead of just offering a simple raise? In addition to a match being a benefit that is part of your total compensation, 401ks have special ...


15

In 2008, the S&P was down 37%. I love charts that show sector performance by year, as it helps show that 2008 wasn't like the crash of 2000-01 which was more tech-centric. Funds that were more geared towards bonds would have been up as the 10 year Treasury was up 20%. I understand you have a low risk tolerance. Over the long term, this will cost you. ...


15

You do not report the Roth IRA on your 1040 because it has no implication to your current tax situation (as you fund it with after-tax dollars). Your IRA custodian(s) would report the contributions to the IRS on form 5948, which would then be used to determine if all of your contributions for the tax year were under the Roth IRA limits. If you did over-...


15

Your math is correct. As you point out, because of the commutative property of multiplication, Roth and traditional IRAs offer the same terminal wealth if your tax rate is the same when you pull it out as when you put it in. Roth does lock in your tax rate as of today as you point out, which is why it frequently does not maximize wealth (most of us have a ...


14

TL;DR I don't like your strategy. Don't wait. Open an investment account today with a low cost providers and put those funds into a low cost investment that represents as much of the market as you can find. Details I am going to start by assuming you are a really smart person. With that assumption I am going to assume you can see details and trends and ...


14

No. Even if you don't need the additional salary income now, you might be able to contribute the incremental amount over the Roth max to either of the other two types of IRAs, or maybe even something else. You never want to take a lower salary, especially not in exchange for something that is conditional e.g. benefits. Your salary is the only thing that is ...


14

According to the IRS page on Roth IRAs: You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). So, April 15th is your deadline (regardless of when you file, particularly since Roth IRA contributions are not deducted and thus not listed on your return). ...


13

If you're not covered by a retirement account at work and earn a high income, you're still eligible to contribute to a traditional IRA. Income limits only apply to Roth IRA's, not traditional IRA's. You may not be able to deduct your contributions to a traditional IRA, however. The IRS publication on traditional IRA's has detailed information on this. If ...


13

Why not just deposit to a Traditional IRA, and convert it to Roth? If you have pretax IRA money, you need to pay prorated tax (on what wasn't yet taxed) but that's it. It rarely makes sense to ask for a lower wage. Does your company offer a 401(k) account? To clarify, the existing Traditional IRA balance is the problem. The issue arises when you have a ...


13

The math works out so that the 401k is still a better deal in the long term over a taxable account because of the tax-deferred growth. Let's assume you invest in an S&P 500 index fund in either a taxable investment account or a 401k and the difference in fees is .5%. I used an online calculator and a hypothetical 1k/year investment over 30 years with 4....


13

Yes, you're allowed to contribute to both a Roth 401k and a regular 401k; it's fairly common to do so for the purposes of diversification. You can also contribute to a Roth IRA, assuming you're under the income limits. Note that your employers' contributions to your 401k (like a match) are always pre-tax, not Roth.


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