Not sure what to do. Roth IRA rules.

[liltommy]

First, I'm not a Fed. Don't boo me out of the room.
My wife is and I manage her (our) TSP.
Things changed last year that effected our taxes, I started making money.
This year none of my contributions (for 2012) to my standard IRA were deductible, we went over the threshold with her having an employee retirement plan. 1st time this has ever happened.
So my 1st thought is that I'll open a ROTH and start putting money into that instead of my standard IRA.
That way I'll can still make earnings which are tax deferred but can pull out the contributions if we need emergency money.
Am I correct with all this?
I'm just not sure I understand it completely. Why do they put a cap on how much you can put into a ROTH if its taxed anyways?

Before someone brings it up, the very 1st thing we're doing is making sure her TSP is maxed. It wasn't last year and I haven't stopped kicking myself in the butt for that blunder.

If anyone has links for "tax planning for the spouse of a Fed" I'd appreciate those also.

Thanks all .
Tommy

 

[Frixxxx]

First, I'm not a Fed. Don't boo me out of the room.
My wife is and I manage her (our) TSP.

Well you have TSP in your family, so you ARE one of us! Welcome!

Things changed last year that effected our taxes, I started making money.
This year none of my contributions (for 2012) to my standard IRA were deductible, we went over the threshold with her having an employee retirement plan. 1st time this has ever happened.
So my 1st thought is that I'll open a ROTH and start putting money into that instead of my standard IRA.
That way I'll can still make earnings which are tax deferred but can pull out the contributions if we need emergency money.
Am I correct with all this?

Unfortunately, it depends on your filing status & the amount of money you & your spouse make. Remember 401g/k and IRA's are tax deferred. Roth IRA's are "after tax monies". Remember that because when you withdraw from the first ones in retirement, it's taxed. The Roth (normal retirement) withdrawals will not increase your AGI.

I'm just not sure I understand it completely. Why do they put a cap on how much you can put into a ROTH if its taxed anyways?

Government wants some of its' share. They will let you get a break, but not a free ride.

Before someone brings it up, the very 1st thing we're doing is making sure her TSP is maxed. It wasn't last year and I haven't stopped kicking myself in the butt for that blunder.

If anyone has links for "tax planning for the spouse of a Fed" I'd appreciate those also.

Thanks all .
Tommy

Congrats on the max. Simply put, each person will handle their financial situation differently. Income, assets, and retirement goals will drive your choices. I highly recommend (based on the highlighted statement) that you may be exceeding the ceiling of income for Roth contributions. It may be worth it to discuss with a tax professional this year to identify risk/advantage of other investments.

Welcome Tommy!

Happy investing.

 

[liltommy]

Thanks for the advice Frixx. You are definitely right about 1 thing, I think its time to get a tax adviser.
Doing a "little" googling, we're over the limits for a ROTH also.
Just when you start making a little headway, they take away all your deductions.
I couldn't take off any of the kids college expenses this year either.

It doesn't seem right. Just because my spouse is covered by the TSP, I'm not allowed to have my own IRA.
What happens when she wises up and leaves me? I'm screwed.
I think my only option I might have it to sign up for the POS 401k my employer has.
No matching and the last I heard, you have to call in to trade positions. What is this 1999?

I'll update if I find anything good. It might help somebody else in the future.

 

[Birchtree]

Open a discount brokerage account and buy some individual stocks - at least any capital gains are still protected from taxes until harvested. I've never owned an IRA of anykind - preferring to have more versatility in the equity markets. You'll have complete freedom without restraint - but of course there will be more risk. But you are in charge. I bought some CX today for myself.

 

[uscfanhawaii]

Thanks for the advice Frixx. You are definitely right about 1 thing, I think its time to get a tax adviser.
Doing a "little" googling, we're over the limits for a ROTH also.
Just when you start making a little headway, they take away all your deductions.
I couldn't take off any of the kids college expenses this year either.

It doesn't seem right. Just because my spouse is covered by the TSP, I'm not allowed to have my own IRA.
What happens when she wises up and leaves me? I'm screwed.
I think my only option I might have it to sign up for the POS 401k my employer has.
No matching and the last I heard, you have to call in to trade positions. What is this 1999?

I'll update if I find anything good. It might help somebody else in the future.

Ahhh, the problems of making too much $$!! :blink:

Seriously, it sounds like you max'ing out on the Traditional TSP is the best. Of course, you can also divert some of that to the Roth TSP, but then you would have lost the tax advantage for the current year for those funds. Best would have been to do the Roth when your income (and tax rate) were low, then switch to Traditional when income (and tax rate) went up. Sorry, I know that does not help you now, but I give that advice to my daughters also.....maybe you have kids that have started earning $ ?

In any case, welcome aboard! Lots of good info on these boards!! (search for 'Roth' and you will get a lot on that!)

 

[PessOptimist]

Cheer up tommy, even if the spouse chooses a seperate path she cannot withdraw TSP funds without your approval. A lot depends on state laws but generally, that fund is community property.

My thoughts about your situation were along the birchtree line. Save what you can somewhere. His advice is good tax wise as money market/savings/CD interest is taxed as income. Cap gains...different aminal.

Congrats, I wish I had your problems with the income thing.

Tax advice is a good thing, just be careful where you get it. A few years back we went to H&R block about inherited rental property. We were told there was only one person in the entire area that knew about that and he worked 50 miles away. So I do not recommend them.

You may be one of the few that MFS may help for this year.

Good luck and welcome.

PO