https://frum.finance logo
Join Slack
Powered by
I contributed to an IRA account on Friday, and jus...
# taxes
t
I contributed to an IRA account on Friday, and just now I realized that I'm over the contribution limits for a traditional IRA. What do I do at this point? (the traditional IRA account is pre existing, a mix of previous 401k and traditional IRA funds from the past, don't know if that affects the solution here). What should I do?
m
Over the income limit or contribution limit
t
Income limit
m
Need to pull out
t
Can I just do that? Transfer the money out of the account? Or is there paperwork I need to do
m
There is paperwork. But wait, you're talking about a traditional IRA? There is no income limit.
I assumed you meant Roth since that one has an income limit.
t
Okay sorry, you're right
I'm thinking of the income deduction limits, I guess
m
Yeah so no issues...
Now it can grow tax free
Just make sure you have good records of what is in this account that this money is post tax money so you don't pay tax on it in the future when you do your Roth conversions
t
I think I don't understand. In principle, I'd prefer not to have money locked in there if I'm not getting a benefit. My understanding was that the benefit of traditional IRA is the tax deduction
m
Bunch of mistakes in that message.
t
Okay sorry šŸ˜…
np noproblem 1
m
ā€¢ Money is not locked in ā€¢ There are multiple other benefits of the money being in there
You'll eventually (or maybe this year) convert it to Roth and not pay income taxes in retirement, so you are getting the "deduction" just not this year
šŸ‘ 1
You'll convert the money to Roth in years you have low income.
But you want to lock in the fact you've captured that amount of IRA money
If you didn't have a mix of pre tax money in there, you could have safely converted this year without paying income tax, but the fact you rolled over the 401k means you'd have to pay some pro rata taxes If you did the Roth conversion this year.
So you can do it in the future whenever you are ready to stomach the taxes.
And aren't in your highest earning years
Basically, don't undo the contribution and you can take the next steps on this when all of that makes more sense to you in the future.
šŸ‘ 1
t
Maybe I'm misreading, but it sounds like you're understanding that I rolled over the 401k this, that's not the case, I rolled it over in the past
Got it
m
Once there is 401k money in the pot, regardless of what year you did it, it complicates this
šŸ‘ 1
Unless it's very little money
While it complicates it, it doesn't make it less beneficial, just more confusing
šŸ‘ 1
t
Thanks
āœ… 1
m
Make sure you make it very clear on your taxes that you made this contribution and that you are not taking a tax deduction on it so that you don't have to pay taxes on it again in the future
You are basically telling the government that this money is Roth but happens to be in a traditional IRA
And that's why you can move it over in the future (or maybe now if this time is right)
7 Views
Open in Slack
PreviousNext
Powered by