I am 28 years old and a public school teacher. My husband is a full-time student and makes no income currently. This year we are finally able to meet all our expenses without having to use credit cards to live. We have about $10K in credit card debt and another $15K in federal stafford student loans. (We are planning to pay down the credit card debt, but right now I am bouncing it back and forth between 0% BT offers.) I am required to contribute 6% of my salary to the state retirement fund and have an option for a 403b (I think) as well. This is the first year that I have contributed anything to the 403b (it's not much, about $75 a month), but I'm wondering if I should be contributing to a Roth IRA instead. My employer does not match any funds to the 403b, but does match to the retirement fund.
Can I open a Roth IRA now, or do I have to wait and stop the 403b? Can I contribute to a Roth IRA for my husband, or does it have to be through his employer (which he doesn't have right now.) I've tried to look around for this info, but am getting more confused. Any help would be appreciated. Thanks!
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nrthomps said:Can I open a Roth IRA now, or do I have to wait and stop the 403b? Can I contribute to a Roth IRA for my husband, or does it have to be through his employer (which he doesn't have right now.) I've tried to look around for this info, but am getting more confused. Any help would be appreciated. Thanks!You can open it and fund it for 2007 any time up to April 15, 2008. Make sure to designate any funds that you want applied to this year as 'for 2007'.
It sounds like your confusion is based upon the idea that it is in some way related to your employer. It is not. You just have to have earned income. Both you are your husband should be eligible to open individual Roth IRAs and fund each up to $4K assuming that you don't hit any income limitations (which you shouldn't because your income isn't high enough to be limited and should be at least $8K). My recollection is that your spouse can fund it as long as you have enough earned income. You should verify this because I am a little fuzzy on that.
Considering that you are a single income household, you might be able to set yourself up for the Tax Saver Credit. To really make that work, you need to calculate your taxes first and you just might find that manipulating between a traditional IRA and Roth could net you up to a $2k tax credit for a married couple. However, as I read your stuff the best you can probably do is $1K because your husband is probably a full-time student and there ineligible for his up to $1K credit.
Just make sure you dont commit too much towards retirement and have to go back to living off your credit cards. Its ok to delay paying off the existing balance, since its at 0% and your husband will soon be adding another full-time income to the picture, but dont add to it.
Chyvan said:Considering that you are a single income household, you might be able to set yourself up for the Tax Saver Credit. To really make that work, you need to calculate your taxes first and you just might find that manipulating between a traditional IRA and Roth could net you up to a $2k tax credit for a married couple. However, as I read your stuff the best you can probably do is $1K because your husband is probably a full-time student and there ineligible for his up to $1K credit.
Chyvan----good suggestion.......are you thinking about the retirement savings contribution credit??? If they are filing jointly, looks like AGI needs to be less than $52,000 in order to eligible for the credit. Check out IRS form 8880 and instructions.
You sound like you have a retirement plan from work but I'm pretty sure you qualify for Roth IRA contributions so shouldn't be a problem.
403(b) is a 401(k) for non-profit organizations. So like a 401(k) it's pre-tax dollars going in and distributions don't gets taxed at retirement. But for most intents and purposes, it's like an IRA (often with restricted options). Roth IRA is with after-tax dollars now but not taxed at the end.
If you've read a bit about IRA vs Roth IRA, you probably know that decision hinges on current tax rate vs retirement tax rate. It's probably safe to assume that on one income at your age, your tax bracket now is gonna be less than at retirement so it'd favor the Roth IRA. Also choice of investment and provider favors Roth IRA since it's not limited at all. If you contributed very little there might be fees with various providers that you'd avoid with the 403(b) but if you go for reasonably-priced providers (fidelity or vanguard especially) I still think the tax advantage and selection make the Roth more attractive.
So I'd make contributions to the Roth IRA for you and your husband as much as you can afford without stretching yourself too thin (i.e. provided you have a backup for emergencies, especially considering the 0% BT game you're doing). You can contribute up to $4,000 for each of you for 2007 (if you contribute prior to April 15th 2008) and starting January 2008, you can contribute up to $5,000 each for 2008. So starting in January, you can contribute total up to $18,000 to you and your husband's Roth IRA provided you had earned income at or above that contribution level (you can't contribute $18k if you only earned $15k say - emphasis on earned income so can't be savings interest or all 0% BT money hehe).
Thanks for all the help. If I'm understanding correctly, I should be looking into a Roth IRA and I can contribute for both mine and my husband's. Also, I looked into the Tax Savers Credit a little bit- since my income is fairly modest (last year I grossed about $32,000) and my husband is in school, we received a tax refund. It was mostly due to the tutition we paid (a Hope Credit, I think.) The Tax Savers Credit wouldn't really be worthwhile if I'm going to get a tax refund anyway, right? I'm sorry that I'm such an idiot about this. Even though I'm a math teacher and am good with numbers, it doesn't mean anyone ever taught me about this stuff! I'm having to learn as I go...
With gross of $32k, your AGI would qualify (joint filing) for 50% TSA. Investing $2000 (for yourself) in a TSA account would result in $1000 credit so not too bad. It's not an either/or situation as far as I understand.
I'm not as knowledgeable as I could be on this because we're nowhere near eligible but I think you could claim that credit as long as you put the money in any tax-deferred account (401(k), 403(b) or either IRAs) designated for retirement. It's just meant to offset the burden of saving money for low-income families but the choice of which tax-deferred vehicle is free as far as I understand.
If your AGI was just on the borderline of qualifying for the 50% credit (drops to 20% credit after that), you might want to reconsider going with the 403(b) instead of Roth. That'd deduct the $2000 from your AGI and get you under the limit for 50% credit. I think you should be well short of that with $32k gross but just in case.
As far as getting no credit because you don't owe any taxes, I'm not quite sure about that. Getting a refund only means that you overpaid your taxes. It doesn't mean that you didn't owe any tax. Otherwise, it'd be easy enough to adjust your withholding to make sure you don't have a refund and thus can use the credit but that'd be a silly setup for the IRS to use since it'd encourage people to underpay their taxes (they want to make money on overpaid taxes I'd figure). [Edit] Looking at form 8800, it compares your TSA credit to your total tax bill (line 46 of your 1040). That's independent of whether you're getting a refund or owe the IRS extra.
Hmm... this is very interesting. I guess I was confusing tax deductions with tax credits (maybe?) So a Roth IRA (or 403B, etc.) would be how my money is being saved, and the Tax Savers Credit is just the government's way of rewarding me for trying to save even though I'm so poor? I should invest in a Roth even if I can't get the Tax Savers credit (or if I qualify for some percentage other than 50%)
To get a Roth, I have to go through a financial institution like Vanguard, right? If I can only put $100 a month into it, is it still worth it?
nrthomps said:I am 28 years old and a public school teacher. My husband is a full-time student and makes no income currently. Make sure you give him a passing grade, otherwise he might not graduate to get that job. Oh, and have you told his parents?
cashmonkey said:nrthomps said:I am 28 years old and a public school teacher. My husband is a full-time student and makes no income currently. Make sure you give him a passing grade, otherwise he might not graduate to get that job. Oh, and have you told his parents?
He's 31 and going to school for philosophy. As you can see, we're never going to make more than $80K.
Here's another question- what makes going with one company for an IRA better than another? I am a member of USAA (have both my auto and home insurance through them, as well as a checking and savings account) and noticed that they offer IRAs. What should I be looking for in terms of how to decide if I use USAA or Vanguard, etc? Thanks!
Please make sure you qualify for the retirement savings contribution credit! According to the form from last year, you CANNOT take the credit if either of you (married filing jointly) were a student for any part of 5 calendar months.
I had planned to take it all year, and noticed the restriction at the very last minute.
semmy said:Please make sure you qualify for the retirement savings contribution credit! According to the form from last year, you CANNOT take the credit if either of you (married filing jointly) were a student for any part of 5 calendar months.
I had planned to take it all year, and noticed the restriction at the very last minute.
Seems like ridiculously frustrating restriction.
semmy..........it is not clear to me that what you say is true. My impression reading the form is that the person who is a full-time student is not eligible for the credit but it is not obvious to me that the other person filing jointly would be disqualified also. See Chyvan's interpretation at the top of this thread which suggests that the other person could get their portion of the credit. If this is really true, you might be able to file an amended return to get your credit.
I'm not familiar with IRAs from USAA but the two main things to consider in the decision are types of investment offered in the IRA and then fees (both general account maintenance and expense ratio of the funds you pick). Vanguard and Fidelity are pretty close in terms of low fees (especially for index funds) and wide selection of funds. For vanguard, with electronic delivery, they waive most of the fees even for low balance IRA accounts (less than $10k). Not sure about fidelity though.
$100/month is on the low side for automatic contributions but would be ok if you have a large enough initial contribution to make to get started. Fidelity requires $2500 to get started but they have their simple Start IRA, where you can start with automatic contribution of $200/month without having to put down the $2500. Vanguard requires a $3000 min purchase usually to start your IRA so that's not very helpful unless you have savings already. If you don't have much to start an IRA, best might be the T-Rowe Price one with a $1000 minimum or $50/month minimum automatic contribution to start one. Their index fund is decent for starters and then once you reach a large enough balance, you can always transfer to another provider in a couple of years.
kaneohe said:semmy said:Please make sure you qualify for the retirement savings contribution credit! According to the form from last year, you CANNOT take the credit if either of you (married filing jointly) were a student for any part of 5 calendar months.
I had planned to take it all year, and noticed the restriction at the very last minute.
Seems like ridiculously frustrating restriction.
semmy..........it is not clear to me that what you say is true. My impression reading the form is that the person who is a full-time student is not eligible for the credit but it is not obvious to me that the other person filing jointly would be disqualified also. See Chyvan's interpretation at the top of this thread which suggests that the other person could get their portion of the credit. If this is really true, you might be able to file an amended return to get your credit.
That's my impression as well. In case of joint filers looking for the savers' credit, if one is a student they're not eligible but the spouse who's working should be just fine claiming the credit. So you won't get 2 x $1000 credit but up to $1000 is already pretty nice.
Ah! Thanks so much for the clarification; I completely missed Chyvan's mention of the student restriction in her/his post. Sorry for spreading (what may be) misinformation -- I misinterpreted the form.
I doubt it would do us any good for though, since both my partner and I were full time students for the entire year (although we were grad students working as graduate assistants, which included teaching classes).
It is frustrating, however, that we both graduated at the very beginning of May of this year, and -- even though we both have real jobs now -- we are still ineligible for the credit, despite still meeting the income qualifications for the year.
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