Phased out IRA, options?

[rubytue]

Hi all, 

Been awhile since I posted on MM, but the other night H said “do you think your old money matter board would know?” So I’m asking...

H has not had an employer retirement account for years. We’ve always maxed out his IRA for that. But, last year we were phased out. Well, his employer also decided to add a simple IRA this year. Should be good, right? Well, it SUCKS. We met with the guy, and it was such a joke. Long story short, he is only offering loaded funds, “to keep fees low.” He also totally refused to answer my fiduciary question. 

So so we are stuck, can’t do the IRA to it’s full potential. Really don’t want to do crappy mutual funds with a 5% load, even with the 3% employer match. Are there any other options for a tax deferred savings? And would you take a 2% loss (-5% + 3%) off the top to get the tax benefits?

This is purely a discussion of tax deferred options.

mid-40s, 401k at ~4x household income. 

PDQ bc of the phaseout parts.

[awkwardpenguin]

You wouldn't be losing 2%. Say you make $100k, employer matches dollar for dollar to 3%. You put in $3k, employer puts in $3k. You buy a fund with a 5% load, but it is only charged on $6k. So you pay a $300 load to get a $3k contribution from the employer. That is very much worth it. I'd only do it up to the match, but definitely get the employer match.

Other than that, you can look into a backdoor Roth but if your H has substantial pre-tax IRA money, it's probably not worth it because of the pro-rata rule. You may be able to do one in your name though if your assets are all in a 401k.

[mokes]

I wrote a whole response that got eaten!

A shorter version — tax deferred option would be a nondeductible IRA. You could also convert it to a Roth for tax-free distributions in retirement but since it sounds like you have other traditional IRA money there would be a tax liability when you convert.

BUT are you sure you’re comparing apples-to-apples percentages? The load is a percentage of your investment and a match is usually based on a percentage of salary. So for instance, if you invest $10k with 5% load, that’s a $500 fee. If his salary were $100k (just for a round number) and his employer matches 100% up to 3% of salary, that’s a $3k match.

[mokes]

Nov 12, 2019 18:48:09 GMT -5 awkwardpenguin said:

You wouldn't be losing 2%. Say you make $100k, employer matches dollar for dollar to 3%. You put in $3k, employer puts in $3k. You buy a fund with a 5% load, but it is only charged on $6k. So you pay a $300 load to get a $3k contribution from the employer. That is very much worth it. I'd only do it up to the match, but definitely get the employer match.

Other than that, you can look into a backdoor Roth but if your H has substantial pre-tax IRA money, it's probably not worth it because of the pro-rata rule. You may be able to do one in your name though if your assets are all in a 401k.

Jinx! So funny we used the same amount. And your load point is better because you’re right that it’d apply to the match $ too.

[rubytue]

Sweet! Thanks. You’d think I’d have actually crunch numbers, but I was just dong it all in my head. And very biased against the sleazy guy we met with lol And no, H doesn’t have substantial assists or anything fancy. It’s mostly my income and savings. But that’s cool.

We tried to see a financial planner offered through our brokerage this summer, but it was only meh. He was no use on this question. And it was terrible timing. I stupidly scheduled the appointment after chemo. So I was high on benedryl from having an allergic reaction and literally still has IVs in me (they were left in over night). Not the best mental place to be talking long term, retirement goals. I’m about at the point I can think long term again.