IRA

Lending Club Self-Directed IRA

September 29th, 2010  |  Published in IRA  |  6 Comments

Lending Club offers a self-directed no-fee IRA. This will allow you to invest your IRA money in any investment that is approved by the U.S. government to be held in an IRA. They would probably prefer you to invest in Lending Club notes, which have average 9.6% returns, but you have the option of investing in whatever you prefer.

To qualify for a no-fee IRA you must have an initial minimum balance of $5,000 or more in Lending Club Notes and maintain this invested balance for the first 12 months. To continue to qualify for the no-fee IRA after the first year, you must maintain an invested balance of $10,000 or more in Lending Club Notes. All account balances are determined as of the last business day immediately prior to the anniversary date of the opening of your account. An annual fee of $100 applies to accounts that don’t meet these requirements.

If you would like to open an account or just want more information just click on affiliate banner below.

Obama Automatic IRA Proposal

January 27th, 2010  |  Published in IRA  |  4 Comments

As part of Obama’s middle-class plan he includes a proposal for an automatic IRA. This has been proposed before but it has never been implemented. Here are a few details of this plan.

Under the plan certain companies that do not currently offer a retirement plan would be required to enroll their employees in an IRA. An automatic deduction of 3% would come out of the employee’s paychecks and be deposited into the account. The employee could opt to lower or raise the deduction or opt out altogether. It is not yet determined what would be the default investment for the IRA.

The positive benefit of an Automatic IRA would be that more workers would be covered by a retirement plan. Currently about half of the workforce lack employer-based retirement plans. Many workers delay contributing to a retirement plan and an Automatic IRA would greatly increase employee savings rates.

The negative aspect of an Automatic IRA is that it would be an added administrative expense for small businesses. Although those proposing the Automatic IRA state that the expense would be low it remains to be seen if that is actually the case.

Income Limits on Roth IRA Conversions Set to End

December 22nd, 2009  |  Published in IRA, Roth IRA  |  3 Comments

Currently if you earn over $100,000 you are not eligible to convert your Traditional IRA to a Roth IRA. The Tax Increase Prevention and Reconciliation Act of 2005 abolished the income limit and the change will take effect as of Jan. 1,2010. The government has also included a one-time option to spread your tax payment over two years. If you convert in 2010 you could pay 50% of the tax owed in 2011 and 50% in 2012. You will need to plan ahead to decide whether it is better for you to pay the total tax bill in one year or two.

Whether you should choose to convert or not is another question. This depends on whether you would come out ahead paying the taxes at the time of conversion or when you retire.

Also as noted in a previous 2010 Traditional IRA conversion post the removal of the income limits for conversion creates a loophole that effectively removes the income limits for contributing to a Roth IRA.

2009 Roth IRA Contribution Limits

January 15th, 2009  |  Published in IRA  |  Comments Off on 2009 Roth IRA Contribution Limits

With a new year comes a new limit for contributions, however 2009 will have the same contribution limits as 2008. This will be the first year that contribution limits will be based on inflation but 2009 will have the same limits as 2008.

For 2009, the contribution limit for Roth IRAs will be $5,000 for Age 49 and Below; $6,000 for Age 50 and Above (to reflect the “catch-Up amount).

Also, the phase-out ranges have been increased by $4,000 for Single filers and $7,000 for Married Filing Jointly. For single filers, ther ange is $105,000 to $120,000. For married filing jointly, the limit is $166,000 to $176,000. In 2010, the limit will be removed!

If you are getting a jump on 2009 contributions, remember to mark your contributions as 2009 Roth IRA contributions or your brokerage may be confused. If you don’t write anything, your brokerage will likely mark the contributions for 2009 but it’s better to be safe than sorry.

Contribution to Non-Deductible Traditional IRA

June 23rd, 2008  |  Published in IRA  |  2 Comments

In 2010, the income rules for Traditional IRA to Roth IRA conversions will be lifted. It’s known as the 2010 Traditional IRA conversion loophole and it will let anyone get themselves a Roth IRA if they are patient and willing.

The current rule states that anyone with income greater than $100,000 cannot convert a Traditional IRA into a Roth IRA. Also, the current Roth IRA income phaseout limits run from $101,000 to $116,000. That means someone with an income of $100,000 or more essentially cannot take full advantage of the Roth IRA.

The solution is for you to take advantage of the loophole by contribution to a Traditional IRA. To take advantage of this, it’s very important for you to open a Traditional IRA that is not part of any existing IRA. When you do this, you will contribute to the Traditional IRA, no deduct the contribution from your taxes when you file, and then do the conversion in 2010 when the loophole presents itself.

It is important that you keep the paperwork very clear, which is facilitated by opening this special account, otherwise you run into some problems later. For example, if you contribute to another Traditional IRA that you have deducted from, you can’t elect to convert the portion that was nondeductible. You have to take it in percentages from each bucket, which can be a headache.

So, if you are going to be taking advantage of the loophole, be sure to open a separate account to keep things nice and clean.

Retirement Account Catch-Up Rules

May 22nd, 2008  |  Published in 401K, IRA  |  Comments Off on Retirement Account Catch-Up Rules

Catching up is hard to do, unless you’re talking retirement savings and you have the power of the US Government behind you. The contribution limits for various retirement accounts are increased if you are over the age of 50 and you can use them to your advantage if you didn’t contribute as much in your younger days. Below is a table listing the contribution limits for each account as well as the catch-up amount for the 2008 tax year.

Account Type2008 LimitCatch-Up Amount
401(k), Roth 401(k)$15,500$5,000
Trad. IRA, Roth IRA$5,000$1,000

So, if you’ve considered increasing your contributions to either account, know that you have a little extra breathing room if you want to contribute more and “catch up.”

Contributing to a Non-Deductible Traditional IRA

May 2nd, 2008  |  Published in IRA  |  2 Comments

If you earn over a certain amount, the Roth IRA option isn’t available to you, you’re left to go after the Traditional IRA. If you participate in a 401(k), you can’t even deduct the contributions to a Traditional IRA. So, why would anyone ever contribute to a non-deductible Traditional IRA? If you did, you’d be paying taxes on the contributions and taxes on the disbursements when you retire… that’s double taxing and that’s foolish! However, there is one reason why you would want to do this. Conversion!

Right now, only those who earned fewer than $100,000 a year can convert a Traditional IRA to a Roth IRA. However, the Tax Increase Prevention and Reconciliation Act of 2005, signed in May 2006, introduced a conversion loophole in 2010 that removed that $100,000 rule. In 2010, anyone is permitted to convert from a Traditional IRA to a Roth IRA. What this also means is that it gives those above the Roth IRA income phaseout to have a back-door method of contributing to their Roth IRA.

When you convert a Traditional IRA to a Roth IRA, you pay taxes on the sum because you were able to deduct the contributions. If you made contributions to a non-deductible Traditional IRA, you already paid the tax so you can make the conversion absolutely free. That’s the only reason I can see for contributing to a non-deductible Traditional IRA… as long as they don’t close the loophole.

Rolling Over Your 401(k) To Vanguard

April 30th, 2008  |  Published in 401K, IRA  |  Comments Off on Rolling Over Your 401(k) To Vanguard

I’ve rolled over two 401(k)’s into a Rollover IRA at Vanguard and both times the process was absolutely painless. If you’re thinking about taking advantage of Vanguard’s low fee index funds, and other mutual funds, then I think that rolling over a 401(k) is a great way to do it. The process is pretty easy and similar to rolling over to anywhere else.

First, you’ll need to open an account at Vanguard.com, specifically you’ll want this page because it focuses on moving money to Vanguard. If you run into any trouble, you can always call up their retirement specialists at 800-414-1742 and get to a human being in a few minutes. After you follow those instructions, you’ll need to contact your current 401(k) custodian (brokerage firm) to let them know you intend to perform a trustee-to-trustee rollover.

The name you want the check made out to is Vanguard FTC and then have the check mailed either to you, where you will forward it to Vanguard, or directly to Vanguard. The information that is provided to you from Vanguard’s online form should tell you where everything should be sent.

If you already have a Rollover IRA at Vanguard, simply do everything as you did before and include a letter that instructs them on how to divide up the funds. The letter is simple, just write that you want a certain dollar amount or percentage in which funds and you’re all done.

As easy as it should always be. (I don’t know if any other brokerage is easier or harder, I just know that Vanguard’s never been a problem)

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The 150th Carnival of Personal Finance is up!

Spousal IRA Explained

April 23rd, 2008  |  Published in IRA  |  Comments Off on Spousal IRA Explained

If you’re a stay at home mom or dad, you can make a deductible IRA contribution (or non-deductible if you opt for a Roth) of up to $5,000 for 2008 if you file a joint return and your working partner/spouse has enough earned income to cover the contribution. That’s right, even if you don’t personally earn the income, if you file a joint return than you can contribute to what is known as a spousal IRA.

The rules regarding the Spousal IRA are the same as any other IRA. Your contribution is capped at $5,000 a year, $6,000 if you are older than 50, and you must have the earned income to do it. For example, if you and your spouse want to both contribute the maximum towards your IRAs, your combined earned income must be greater than $10,000 ($5k each). For the purposes of a Roth IRA, the contribution phaseout schedules still apply.

Deductibility Phaseout Rules

The rules start to get a little tricky when you’re talking about deductible IRA contributions and qualified retirement plans (like 401ks). If neither one has a qualified retirement plan, you’re in the clear and can deduct up to $10,000 of contributions. If both participate in a qualified retirement plan, then the phaseout is from $85k to $105k in earned income for deductibility purposes. That means that if your combined AGI is over $105k, then you cannot deduct your Traditional IRA contributions.

If only one participates, then it gets tricky. The deductibility phaseouts for the one participating is the $85k to $105k one listed above. The non-participating spouse instead uses the $159k to $169k phaseout period. For example, if a couple only has one participating member and earns $120k, then the participating spouse can’t deduct contributions but the non-participating spouse can.

Roth IRA

Or you can contribute it all to a Roth IRA, which are after-tax dollars, and then deductibility is not an issue. The phaseouts for the Roth IRA for 2008 are $159k to $169k, meaning if you earn more than $169k then you cannot contribute to a Roth IRA.

Whew!