Google's Roth IRA Questions Answered

Blueprint for Financial Prosperity is doing a neat thing where he looks at his site stats to see what Roth IRA questions people are typing into Google that direct them to his blog, and then he answers them in a post.

Can I contribute to Roth IRA and IRA?
You can contribute to a Roth and any other IRA at the same time but they share contribution limits, that means you can put a total of $4k into IRA accounts. So, if you put in $2k into your Roth, you can only put $2k into Traditional, and $0 into a SEP-IRA. If you put in $1k into your Roth, you can put $3k into Traditional. As long as the sum is under that year’s limit and your contribution limit, you’re good. You just can’t go over the annual limit.

Jim also addresses the cost of converting a traditional IRA into a Roth, calculating the Roth IRA phase out contributions, and more. Whether you’re still thinking about starting a Roth or already have one, the post has good material for you. — BEN POPKEN

[Google Asks About Roth IRAs [Blueprint for Financial Prosperity]
(Photo: FastFords)

Comments

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  1. eldergias says:

    Cool. Though I wonder: Does it count as a contribution to roll a 401K into an IRA? I know that if it was Roth you would have to pay taxes on it, but is it a contribution?

  2. not_seth_brundle says:

    I don’t get it. If the Google search led people to his blog, doesn’t that mean the question is already answered on his blog?

  3. orielbean says:

    Yes, elder – it is no longer a “rollover” if it goes to a Roth. Not allowed to go straight from 401k to roth ira. A rollover is done with “qualified” monies. They stop being qualified when you have to pay taxes on them. You would need to recharacterize a traditional ira into a roth to do what you are asking.

    However, if you took your 401k and rolled into a traditional IRA, you can send the whole thing in there. No limits, because you are doing a custodial transfer and don’t take constructive receipt of the money. You avoid the 10 % withdrawal penalty and don’t pay taxes when you move the money between qualified vehicles.

    Beware of the possible fees with the ira, though. The odds are very good that your 401k has a much lower fee, even if you don’t work there anymore, vs the ira. The downside – if you aren’t working there anymore, you probably can’t contribute.

    Just look into the fee schedule for the IRA first – that is a big hidden cost. Otherwise they are extremely powerful vehicles for saving. And you can take the money out for absolute emergencies or special safe harbor situations, so it isn’t completely locked away either.

    And one last tip – always diversify amongst your investments. It should look like the fat kid at the buffet – a little bit of everything on your plate. Some stocks, some bonds, some sectors, etc – always a sound move as a saver and not someone nearing retiree age.

  4. zolielo says:

    @orielbean: Nice reply!

    I just did a 401k and rolled into a traditional IRA as I hated that firm. It was a loss as you have stated but worth it to get away…

  5. twonine says:

    my tax guy said it was cool to max my roth ira, as well as my sep-ira, as separate limits. should I be really worried now?

  6. orielbean says:

    Twonine – it is always possible that something changed in tax law regarding the limits. I would not freak out; perhaps the tax person had a good reason. I would ask them, however! Sometimes they feel that it saves you money to sock more away and pay a little more tax on it now vs later at retirement withdrawal time.

    To those contemplating 401k vs IRA. There is one HUGE thing to be aware of. Company Match. If your company will match a percentage of your contributions, you are getting free tax free money. You need to contribute to get it, and there is usually a limit btw 3-7 percent. If you have an ira, this won’t apply in most cases. FREE MONEY. YOu should really only look to roll once you’ve terminated, get no more match, and cannot make any more contributions, or if they charge 401k maintenance fees to term vested employees vs active employees.

  7. @not_seth_brundle: Not necessarily, sometimes they just happen to jive with some phrasing I used in an earlier post, either way I figured a direct answer would be easier next time around.

    @twonine: SEP-IRAs have employer and employee side contributions, your employee side shares a limit with your Roth and Traditional IRAs, the employer side does not. I’d double check with your tax guy to see what he/she meant by “max out the SEP-IRA.”