MoonlitHollow said:During years of little to no income you should convert to a Roth IRA, plain and simple. Unless of course converting to a Roth would negatively impact your EFC when you file a FAFSA for financial aid.If you are willing and able to pay the taxes on your recharacterized IRA, this makes a great deal of sense.

titan01 said:The contributions of Roth IRA can be taken out penalty free? only the interest earned has a penalty?

I thought Roth IRA contritubtions can only be taken out for a house?First of all, you can take out all of the money any time you want (unlike with a 401(k) plan). The question is what tax you will owe.

Your regular contributions can be withdrawn any time, without tax or a penalty. Earnings are subject to tax unless (1) you have had a Roth IRA for at least 5 years and (2) you are any of: over age 59 1/2, disabled, dead or a "first-time homebuyer." You have a lifetime limit of $10,000 of first-time homebuyer distributions. All of these distributions are also exempt from the 10% penalty.

Earnings would be subject to tax but not the 10% penalty if your withdrawal is part of a series of substantially equal periodic payments (annuity-type payments), is the result of an IRS levy, goes to a former spouse as part of a divorce, is used for high medical expenses, college expenses or, if you're unemployed, health insurance, or if you're in the Military reserves and are called to active duty.

MosDeft said:Quick question regarding Roth IRAs. I had a non-trading Roth at Vanguard because my previous employmer forced me to have a non-trading IRA due to SEC regulations. Can I open a separate IRA now at say TD Ameritrade for trading purposes?You can have as many IRA's at as many different places as you want (as far as the law is concerned). You are also free to transfer assets from the one at Vanguard to the new one, if you want more money to trade with.

mlayu said:Can a self-employed, sole proprietor, reduce his FICA tax by contributing to SEP IRA? If not, is there any way to reduce his FICA?My understanding is that retirement plan contributions of all types don't count as business expenses even though it is business income that justifies them; therefore, they don't reduce self-employment tax.

Before you put any effort at all into reducing this tax, make sure that it actually makes sense for you. Less social security tax (I think, technically, it's only called FICA when it's through an employer) means less social security credit which usually means lower benefits. It's hard to say what changes will happen if you're far below age 62, but it's pretty likely that more credits will still mean more retirement income somehow. Especially if you have below-average income, social security is quite a good deal: by earning more, you get a bigger subsidy from higher-income workers. There have been a few threads here on the subject (you might try searching for "bend point").

If you do want to cut employment/self-employment tax, the easiest thing to do is to not be self-employed. If you form an S corporation, it can pay you a salary, which will be subject to employment tax, and then retain the rest of its income; it will flow through to you, so there is no big change on your income tax, but the retained income won't be subject to employment tax. You can also have the corporation pay you dividends, which will usually have no income tax consequences and won't be subject to employment tax; but, if your salary is unreasonably low, the IRS could argue that your dividends are really a disguised form of salary and subject to employment tax. The corporation could invest its retained earnings, and you could someday cash out by dissolving it or by selling it. But having assets owned by a corporation, even an S corporation, has a lot of income tax disadvantages.

To completely get rid of employment tax, you could instead work for a limited partnership and be paid a share of profits rather than a guaranteed amount. By law, that is not subject to employment or self-employment tax. For example, you could form an S corporation to be the general partner, receiving 1% of all profits, and you could be the limited partner, getting the other 99%. Your 99% would be free of employment and self-employment tax, and you would have the same options with the corporation's 1% (either retain them, or pay them to yourself as some mix of dividends and salary for being an officer of the corporation).

These options will cost you a few hundred dollars a year for franchise taxes and things like that.

Finally, anything you do to cut income taxes from the business will reduce self-employment tax -- except for things like retirement plan contributions that are not considered business expenses. You could look into spending money on equipment, to increase depreciation or, under some circumstances, expense it immediately. But, of course, that will cost real money, so you have to have some hope of actually making it back.

mfmruizv said:I currently am earning 4% interest in a high yield dda.You mean a bank account? If so, I assume that is one that only pays that much on a certain balance.
Seeing as how both accounts would allow me to withdraw at anytime, besides the obvious that i can leave the Roth Ira account on the side for just savings towards retirement and without penalty on earnings if i withdraw after retirement what are the benefits.It's not just no penalty but no tax on earnings if you're over 59 1/2 and have had an account for 5 years. But that's it.
Is it common for a Roth Ira to gain 4% + in interest a year ? I would be looking to put 3k-max if benefits over high yield are much bigger.An IRA can invest in just about anything, but probably not a bank account if it requires direct deposit, debit card activity, etc. If you're in the 25% tax bracket, you only get to keep 3% on your bank account's yield; with an IRA, you would pay no tax, but you probably can't earn 3% right now without taking risk.

So, you'll probably have more money in a year if you keep the money where it is. But that's not all there is to it. If your account will only pay a high interest rate on $25,000, eventually (hopefully) you will save more than that. At that point you'll be much happier if more of your money is in a Roth IRA where you get to keep all of its earnings.

Hi all, I'm new to FW and seeking some IRA advice.

My wife and I both pulled from our Roth IRAs to buy our first home 2 years ago. My wife also started graduate school for nursing last year, so both of our Roth IRAs (Fidelity and Franklin Templeton) are <$5k and we haven't been able to contribute to them at all in the last year. And we don't anticipate being able to contribute much until she graduates this time next year. Nonetheless, we'd like the money we do have there to have the best chance at growth over the next year. I'm considering rolling over both of our Roth IRAs into Vanguard Roths, maybe a Vanguard Target Retirement 2045 Fund? Is it a good idea to do this now or wait until next year when we'll be able to regularly contribute to them?

titan01 said:Right now I have a Vanguard Roth IRA. I opened up with one of the core fund options. If I have the total stock market index, and would like to transfer that money over to total international stock index is that possible? Are there any fees involved? Sorry, I don't know the correct terminology for this.Definitely possible. You can easily do it on the web site (technically it's an "exchange") or by calling them. There are no fees for selling the Total Stock Market fund, and there are none for buying the Total International Index fund, but you would be charged 2% if you then sold the Total International Index within 2 months. Be sure that you're signed up for electronic mailings to avoid account fees if you have less than $10,000 in a fund and less than $100,000 at Vanguard all together.

LH2004 said:titan01 said:Right now I have a Vanguard Roth IRA. I opened up with one of the core fund options. If I have the total stock market index, and would like to transfer that money over to total international stock index is that possible? Are there any fees involved? Sorry, I don't know the correct terminology for this.Definitely possible. You can easily do it on the web site (technically it's an "exchange") or by calling them. There are no fees for selling the Total Stock Market fund, and there are none for buying the Total International Index fund, but you would be charged 2% if you then sold the Total International Index within 2 months. Be sure that you're signed up for electronic mailings to avoid account fees if you have less than $10,000 in a fund and less than $100,000 at Vanguard all together.

Is it possible to "exchange" a collection of funds to get enough ($3000) to buy a different fund?

jackcrawfish said:If the following items are all true:
you have a 401(k) with reasonably large balance (ie, $20k)
you have a high deductible health plan (ie, $7500 deductible)
you have HSA's with balance less than the health plan deductible (ie, $3k combined balances)
you will have a large medical expense in early 2010 (ie, $8k)
Then it seems that a partial rollover from 401(k)/403(b) into an HSA might make sense (only to the extent of the deficiency between your HSA balances to your medical deductible)I'm still not getting why. By doing the rollover, you are losing your ability to contribute to an HSA for the year, and therefore your ability to deduct the amount of the contribution limit.

I can see that it would make sense if you need it to avoid the 10% penalty, but, generally, large medical expenses will let you make a penalty-free withdrawal.

I think that, if you can afford it, you always want to fund your HSA with your own money up to your deduction limit, and leave your IRA alone.

I am over the income limit for ROTH or tax deferred IRA, but I can contribute to taxable IRA regardless of my income... the question is, if I do that can I convert the taxable IRA to ROTH next year due to the loophole that is coming in effect in 2010???? any help will be appreciated. my 401k is already maxed out and I am getting killed on taxes... I need to find a way to shelter some more money, my house is also paid for in full... any suggestions?