I’m 48 years old. Last year I earned him $310,000 and he currently has $546,000 in his workplace retirement plan. My husband is disabled, she doesn’t work, and she doesn’t participate in a 401(k) plan. I wanted to open a Roth IRA, but I read that it takes too much money. What options do I have to save more for retirement? I have no debt other than my mortgage, which I plan to pay off over the next two years until my daughter goes to college. What would you advise?
Navigate retirement Account rules can be complex and frustrating, making it seem difficult to save as much as you want. You already have a solid foundation to build on, and you have more options than you think to strengthen your savings.
Even if you have a workplace plan, you can still contribute to the project. Traditional IRAHowever, donations are not tax deductible. You can also create and contribute to a spousal IRA for her husband. You may also have too much money to contribute directly to a Roth IRA, but you may be able to contribute through a backdoor Roth IRA.
When it comes to mortgages, if interest rates are lower than 4%, it may be worth not making any extra payments and instead saving or investing that money. For example, high-yield savings accounts currently yield around 5%. The interest rate on one-year certificates of deposit (CD) is up to 5.5% or more. Remember, just because your savings and investments aren’t in a formal tax-advantaged retirement account doesn’t mean they can’t be used to fund your retirement.
consider talk to a financial advisor Click here to learn more about savings and retirement planning.
Contribute to workplace plans and IRAs
Anyone can contribute to both a workplace plan and a traditional IRA, but depending on your income, your contributions may not be tax deductible.
You can contribute up to $6,500 ($7,500 if you’re 50 or older) to an IRA in 2023. If neither you nor your spouse participate in a workplace retirement plan, your contributions are tax deductible.
However, if you or your spouse participates in a workplace retirement plan such as a 401(k), your contributions may be only partially deductible or completely nondeductible. Even if you don’t get a tax deduction for your current contributions, you’ll still get the growth in your account after taxes. Growth and gains are taxed when you withdraw them in retirement.
Another benefit: Once you have money in your IRA, you have the option to convert it to a Roth IRA. (Need help planning your Roth conversion? Please consult a financial advisor. )
The amount you can deduct depends on your household income and filing status.
Single person or head of household covered by workplace plan
If you are single or head of household and have a workplace plan in 2023, your IRA contributions are:
I’m married, filing jointly, and have a plan at work.
If you’re married, filing jointly, and have a workplace plan in 2023, your IRA contributions are:
Are you married, filing jointly, and your spouse has a workplace plan and you don’t?
If you’re married, filing jointly, and have a spouse with a workplace plan in 2023 (but you don’t), your IRA contributions are:
Create and Fund a Spousal IRA
Generally, you must have income to contribute to an IRA. The exception is if the spouse has enough income to cover two of her IRA contributions.can open spousal IRA For spouses who are not working. A spousal IRA gives your family the chance to double her retirement savings.
Despite its name, a spousal IRA is no different from a regular IRA in how it is set up and its tax benefits. It’s not even a joint account. Only the non-working spouse owns this IRA. However, to qualify for a spousal IRA, you must use “married filing jointly” as your income tax filing status.
Same contribution limit Roth IRA Deduction limits for traditional IRAs apply in the same way as for retirement accounts. Traditional spousal IRAs are also eligible. Loss conversion. (Have more questions about spousal IRAs? Consider matching with a financial advisor. )
Is a backdoor Roth IRA right for you?
Roth IRAs have several beneficial twists that make them desirable for many taxpayers. First, all withdrawals, including growth and gains, are completely tax-free as long as you follow the rules.Another one, there is no need to take Minimum distribution required (RMD) So it takes even longer for your money to grow.
Unfortunately, Roth IRA contributions have income limits that exclude many people from contributing. In 2023, single filers with incomes of $153,000 or more and married couples filing jointly with incomes of $228,000 or more cannot contribute to a Roth IRA.
Therefore, backdoor loss will appear. This conversion process gives high-income individuals the opportunity to move funds in their traditional IRA to a Roth IRA. (Need help setting up a backdoor Roth? Please consult a financial advisor. )
The process is very simple. If you don’t already have a Roth account, create one. Tell your IRA administrator that you want to convert all or part of your traditional IRA to a Roth IRA. Fill out a few forms and the administrator will take care of the rest.
Other considerations to keep in mind:
there is something special proportional tax rules Therefore, all traditional IRAs must be considered as a whole, both pre-tax and after-tax contributions, to determine the taxes on the conversion. You cannot choose which IRA money to convert.
That said, tax-free withdrawals in retirement may be well worth it, even with all the potential complications.
Even if you have a workplace plan, you can increase your retirement savings by contributing to IRAs and spousal IRAs. You can also create a tax-free source of retirement income by converting a portion of your retirement savings to a Roth IRA.
Tips for finding a financial advisor
find financial advisor It doesn’t have to be difficult. SmartAsset Free Tools , we match you with up to three vetted financial advisors serving your area. You can also have a free introductory call with an advisor to decide which advisor you feel is a good fit for you. Are you ready to find an advisor to help you reach your financial goals? Get started now.
Consider several advisors before deciding on one. It’s important to find someone you trust to manage your money. As you consider your options, you may consider the following: Questions to ask your advisor To ensure you make the right choice.
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Michelle Kagan, CPAis a SmartAsset Financial Planning columnist who answers readers’ questions about personal finance and taxes. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com. Your question may be answered in a future column.
Michele is not a participant in the SmartAdvisor Match platform and receives compensation for this article.