Posted on 11/01/2018 9:34:03 AM PDT by Tell It Right
The limit on annual contributions to an IRA has increased to $6,000 from $5,500 for the 2019 tax year, while the limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $18,500 to $19,000.
(Excerpt) Read more at marketwatch.com ...
I strongly advise putting money into your Roth 401k/403b/457 if you get an employee match. Then extra money in your budget goes to your Roth IRA. And if you max that then max out your Roth 401k/403b/457.
Roth IRA's give you the flexibility to take out whatever you put in if you started a Roth IRA at least 5 years ago. (Really, it's 4 and a piece years you have to wait, because it's after the 5th January 1st you're able to take out what you contributed.)
So in my case I have many kids and didn't know how many of them would go to college, stay in college, etc. So I put the max in mine and my wife's Roth IRA's, starting them 5 years before my oldest was old enough to go to college. We were able to cash flow one kid's worth of college costs, but not 3 kids simultaneously. So I took a little out of my Roth IRA with no penalty to help offset the costs.
If I had put a lot into a college 529 and wound up with only 1 kid in college, I would have trouble taking out the excess from the 529 for non-college use (i.e. retiring) without paying a penalty. But using Roth IRA's gave me the flexibility for the unknown.
Is there any more news on President Trump maybe raising the mandatory withdrawal age from 70 1/2 years old?????
Still too low
Oops. My original comment said the over 50 catchup for 401K’s is $500. It’s still $6K. So max in 401K’s for over 50 is $25K.
“Is there any more news on President Trump maybe raising the mandatory withdrawal age from 70 1/2 years old?????”
I believe the Senate hasn’t even looked at the Family Savings Act (passed by the House a month or so ago). That’s got the raising of the RMD age, or at least a free pass on it if your account is below a certain amount.
If I was you I’d strongly look into rolling over your old 401K or IRA into a Roth IRA. Just do it only so much at a time — you’ll pay income tax on the amount you roll over and don’t want to put yourself in a higher tax bracket. Figure out what your AGI is, then how much you can increase your AGI without going into a higher tax bracket, and roll over that amount from your old 401K/IRA to a Roth IRA. Roth IRA’s have no RMD’s.
The news report I posted isn’t a Trump passed thing or new Congress passed thing. It’s already in the old IRA and 401K law to automatically raise the max’s based on the inflation rate, as long as it’s done in $500 increments (the reason they don’t raise it every year).
Thank you...
The CPA in me hates this headline.
It makes it sound as if the limit has been eliminated; which is what caused me to open the article.
It should really say that the limits have been raised.
Question: I’ve heard Dave Ramsey and now you (and others) say to match the employer and then fund a Roth IRA and then back to the Roth 401K. My question is why? Why not just stay in the Roth 401K due to lower fees? Is it because of the lack of 10,000 funds? Thanks..
The object of the game is taxes. If you are in a high tax bracket it doesn’t make much sense to contribute to the Roth until you have contributed enough in standard 401K/457/403B plans to lower your tax bill. Fees are a separate issue.
Thanks EVO. We are not in a high tax bracket though. So, whatcha think I should do?
If you are not sure what to do, you should seek financial advise or learn more on your own. For example, my credit union has a in house advisor. I am told the first consultation is free. There are also financial planners that charge by the hour. If you think there is a chance you might have to use Obamacare, a Roth IRA might not be right for you.
Mostly because of the availability of funds to choose from are often limited by your 401K plan. However, when you go to a Roth IRA you’re picking the investment firm you deal with, and it’s not limited by what someone in your HR dept. agreed with them should be available. In other words, you’re almost certainly able to diversify more in anything outside your 401K, whether you put it in a Roth IRA, IRA, plain ol’ taxable accounts, or some combination. For example, I like to use Paul Merriman’s Ultimate Portfolio, or his Value Portfolio. I also like to put a little into an energy fund, a tech fund, a health sciences fund, etc. Good luck finding funds for all those asset classes in your 401K.
2) With Roth IRA’s you can take money out after 5 years without penalty. Really it’s just 4 and a piece years. The law says it counts the number of January 1st’s since you open a Roth IRA. So if you start one before 2018 is over, beginning Jan. 1, 2023 you can take out of your Roth IRA whatever you put into it penalty free. The key is to keep up with how much you’ve put into it (IRS word is “contributions”) and how much you’ve taken out (”distributions”). For example, I have 4 kids and didn’t know how many of them would go to college or stay in college. So I didn’t want to use a College 529 to save up for them — what if I had only 1 kid go to college and was left to being penalized for taking the extra money out of the 529 account for non-college use (i.e. retirement). Solution: I started Roth IRA’s in mine and my wife’s name many years before college (because of the 5 year rule). Our budget allowed us to easily cash flow one kid in college, and was tight with two kids in college. But when we had three kids in college simultaneously I had to take some money out of our Roth IRA’s. There were no questions asked. No receipts needed to prove it was used for college. Just an extra form to fill out during tax time that year. Like I said, keep up with your contributions. If you take out more than you put in you get into the earnings portion — and that’s not allowed without penalty unless you’re at least 59.5 years old.
Bonus points: Start a Roth IRA in both your name and your spouse’s name to start the 5 year clock for both of you. The minimum is $1K to get started (or agree to $100 per month for 10 months). Then if you got spare money in your budget contribute to the Roth IRA of the oldest of you and your spouse — the one who’ll get to 59.5 years old first. After 5 years, when you have extra money you can throw it in your Roth IRA’s without worrying about the possibility of needing it later (i.e. if the car needs to be replaced).
Bonus Point #2: It’d be unwise to invest in LSU this Saturday. :)
You are so right. I wrote the headline in a bad way.
Thanks
No change for simple IRAs?
“No change for simple IRAs?”
Yes. The traditional IRA’s have the same max contribution increase as Roth IRA’s.
A simple ira has a different limit than a traditional IRA.
Thanks for the info. I’m not hip to simple IRA’s.
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