My wife puts about $15,000 in a pretax retirement account and then maxes out her ROTH ($5,000?). She has just turned 50 and if I understand it correctly she can now start putting a larger amount in her ROTH. Not sure what the limit is. My question is would she be better off taking money out of the pretax retirement to max out the ROTH, or would she be better leaving things the way they are.
Roth limit for 2015 is $5,500, $6,500 if over 50.
“My question is would she be better off taking money out of the pretax retirement to max out the ROTH”
Depends - do you expect tax rates to go up? - do you live in state that does (or does not) tax retirement income?
the general rule… contribute in this order
- contribute to your pre-tax 401k to get the maximum corporate match (if there is one)
- max the Roth (if hit income limits - do a “backdoor Roth” if available)
- contribute as much as you can to the 401k until you hit that limit.
What is this pre-tax retirement account?
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This is an account thru her employer which allows you to invest money in a retirement account pretax. When you retire and pull money out then it is taxed. I think the government limit on this account is around $15,000 which we meet. I think her employer has a 5% match which we obviously do. Not exactly sure how this money is invested. What is this pre-tax retirement account?
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This is an account thru her employer which allows you to invest money in a retirement account pretax. When you retire and pull money out then it is taxed. I think the government limit on this account is around $15,000 which we meet. I think her employer has a 5% match which we obviously do. Not exactly sure how this money is invested. What is this pre-tax retirement account?
Nope. Limit last year was 17500. This year it is 18k. Employer can contribute on top of that. Plus you can contribute even more once you hit 50.
Here are the limits for retirement plan contributions for 2015:
401(k), 403(b), etc. = $18,000
Catch up for individuals age 50 or greater during the year = an additional $6,000
SIMPLE IRA = $12,500
Catch up for SIMPLEs = an additional $3,000
IRA, Roth IRA = $5,500
Catch up for IRAs = an additional $1,000
If she is already maxing out her workplace plan (401k, 403b, etc), then it may make sense to fund the next $1,000 into her Roth. If the funds are available, she should then be able to do additional ‘catch up’ contributions into her workplace plan.
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Here are the limits for retirement plan contributions for 2015:
401(k), 403(b), etc. = $18,000
Catch up for individuals age 50 or greater during the year = an additional $6,000
SIMPLE IRA = $12,500
Catch up for SIMPLEs = an additional $3,000
IRA, Roth IRA = $5,500
Catch up for IRAs = an additional $1,000
If she is already maxing out her workplace plan (401k, 403b, etc), then it may make sense to fund the next $1,000 into her Roth. If the funds are available, she should then be able to do additional ‘catch up’ contributions into her workplace plan.
I think it really depends on what funds she can buy in her 401k if she has a bunch of high expense ratio active funds it might make sense to fund the 401k up to the match then max out the Roth then put and extra funds in the 401k.
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Yeah. I didn’t word that the best. The OP indicated that she’s already maxing out her workplace contribution, and also maxing out her Roth. I assumed she’d have the extra $1,000 to fund the Roth ‘catch up’ on top of all of that. If not, I would tend to agree that she may wish to reduce the workplace contribution in order to come up with that $1,000 to fund the Roth.