IRA Question

**mauimagic** · 02-11-2011, 01:42 AM

Aloha - I need some help from all of you who know more about these things than I do.

I have the money to put $5000 in an IRA for DH and would love some suggestions as whether or not to get a Roth or regular on and also where to get one? Mahalo.

**Greebo** · 02-11-2011, 08:21 AM

Relocated to Debt Reduction & Money Management forum from Challenges forum.

**Greebo** · 02-11-2011, 08:25 AM

Originally Posted by mauimagic

Aloha - I need some help from all of you who know more about these things than I do.

I have the money to put $5000 in an IRA for DH and would love some suggestions as whether or not to get a Roth or regular on and also where to get one? Mahalo.

Ok - now that I've done my moderator duty...

The difference between a Regular IRA and the Roth IRA has to do with taxes.

First of all - be clear that IRA money is *INDIVIDUAL* not joint - so whomever's name you put this in - you cannot put it in a traditional IRA if that person has a 401k or other tax sheltered retirement plan with work.

If no 401k or other such work related retirement plan exists, then a traditional IRA is an option - and contributions to it are tax deductible. The Roth, on the other hand, is funded with post tax money.

I assume the taxes on this $5k has already been paid - so if you can and do use a traditional ira you'll "unpay" those taxes in your 2011 return.

When you eventually withdraw this money, if it's from a traditional IRA, you'll be taxed then. If it's from the Roth, there will be no taxes - you already paid them.

So the question of where to put it can't be answered until we know what your options are and what you have presently.

**mauimagic** · 02-11-2011, 11:12 AM

This is tax free money, WC settlement. I think that the basic IRA would be the best choice now. DH is self employed and has no 401K or employer retirement plan.

Next step?

**craftypam** · 02-11-2011, 11:25 AM

Don't want to throw more at you; but my dh is self employed and we have a SEP. Simplified employee pension. We are able to put more into this account than a regular ira. We are able to put a percentage of what dh earns.

**mauimagic** · 02-11-2011, 11:28 AM

Appreciate any and all info Pam. DH's business is not really profitable (not going to go into that - big sigh) - so there are no profits to start up a SEP.

**Greebo** · 02-11-2011, 11:51 AM

Originally Posted by mauimagic

This is tax free money, WC settlement. I think that the basic IRA would be the best choice now. DH is self employed and has no 401K or employer retirement plan.

Next step?

If you go with basic IRA and not SEP - you find a bank or other financial institution with whom to hold the account.

**dcompton** · 02-11-2011, 02:03 PM

Greebo, this doesn't really relate to MM's situation, but I do have both a 403b tax sheltered retirement plan at work and an IRA. You can contribute to both, so long as you don't exceed annual contribution limits. The 403b is, of course, payroll deduction, and I set up the IRA so I would have a way to contribute variable amounts as the cash flow permitted during the year. They are both with TIAA-Cref that assured me this was ok when I inquired if I could have both, and so far the IRS hasn't squealed about it.

**Greebo** · 02-11-2011, 02:26 PM

Hmm. I may be misinformed. Thanks!

**kita** · 02-12-2011, 11:36 AM

I know that I am walking where angels fear to tread so correct me...

If this money has already been through the "taxing" process in 2011 and you have already paid what the IRS has told you to pay (nothing) wouldn't you want to put it in a Roth so that you won't have to pay tax on it in 20XX?

Of course if you meant to say that it hasn't been taxed when you got it and you will have to claim it as taxable income in 2011, then I would put it in a traditional IRA so you don't have to come up with money to pay taxes or cut into it.

Maybe I am misunderstanding something.

**mauimagic** · 02-12-2011, 03:59 PM

Originally Posted by kita

I know that I am walking where angels fear to tread so correct me...

If this money has already been through the "taxing" process in 2011 and you have already paid what the IRS has told you to pay (nothing) wouldn't you want to put it in a Roth so that you won't have to pay tax on it in 20XX?

Of course if you meant to say that it hasn't been taxed when you got it and you will have to claim it as taxable income in 2011, then I would put it in a traditional IRA so you don't have to come up with money to pay taxes or cut into it.

Maybe I am misunderstanding something.

Good question Kita. Unfortunately we need to minimize our 2010 income to get back as much money as possible this year. Our financial situation is the pits and we are digging ourselves out - I tend to take the lead here, but DH is slowly catching on. Wish we could take out a Roth - now that makes good sense.

I appreciate any and all questions and comments - helps clear my thinking....mahalo!!

**dcompton** · 02-12-2011, 04:34 PM

MM - usual disclaimer, I am no expert, and some of our tax savvy people can probably help you more, but...

Did you get the $5000 in 2010 or 2011? Is it taxable income? I assume it is. I think you have some time after the first of the year to make IRA contributions for 2010, but I don't know that for sure, and don't know if you could if you just open the account now. If you could, if you went with the traditional IRA the amount would be a deduction, and that would increase your refund. At least that's what happens with mine.

I think the best thing to do would be to drop by your bank, or any other, and talk with one of their people. They will know all the ins and outs and will be able to answer your questions about how this works and which would be best in your case. Of course, they will also be trying to sell you their investments, but you can pick their brains before you make any decision about that.

**mauimagic** · 02-12-2011, 04:48 PM

Mahalo Donna - payment made to me in 2011. No taxes due on it. Think I shall check in at our bank.

**Greebo** · 02-13-2011, 04:59 AM

Originally Posted by mauimagic

Good question Kita. Unfortunately we need to minimize our 2010 income to get back as much money as possible this year. Our financial situation is the pits and we are digging ourselves out - I tend to take the lead here, but DH is slowly catching on. Wish we could take out a Roth - now that makes good sense.

Uh.

You have $5,000.

How bad is the tax situation? Perhaps that $5,000 would better be used to pay your taxes?