So I gave my wife some bad advice. Earlier this year, we had $1,000 that we wanted to invest in a retirement account in her name. We looked at either a Roth IRA or a Traditional IRA, and a Traditional seemed to make more sense. We are in the US now, but she is from a different country (one that doesn’t allow Roth to be taken out tax free at retirement) and we may end up retiring there. So we decided on a Traditional IRA with Fidelity.
Well, I failed to consider the income limits for contributing to a Traditional IRA and we are above the limit (married filing jointly). We are kicking ourselves a bit because she has a good 457 retirement plan at her job (which she has since started contributing to). As I understand, this means the contribution isn’t tax deferred, but it will grow tax-deferred. Maybe not a huge deal since it’s only $1,000? But we’d like to optimize our tax advantages if possible.
I understand a Backdoor Roth IRA is an option, but we’d like to avoid that given the issue about possibly retiring in a different country. But maybe that would still be the best option for tax advantages? Or another option: would rolling over the $1,000 to her 457 plan mean the contribution is tax deferred, or would it be basically the same situation as leaving it in the Fidelity Traditional IRA?
What to do with Traditional IRA funds when over the income limit?
byu/DevoutBokononist inpersonalfinance
Posted by DevoutBokononist
4 Comments
> Earlier this year,
If you are under the limit to make roth IRA contributions, you can recharacterize the contribution to roth IRA.
Or, you can do an return of excess contribution and contribute $1000 from her paycheck to the 457 instead.
“Well, I failed to consider the income limits for contributing to a Traditional IRA”
There are no income limits on a traditional IRA
[https://www.schwab.com/ira/traditional-ira/contribution-limits](https://www.schwab.com/ira/traditional-ira/contribution-limits)
I could be wrong on this, but if the Roth is held here, what difference does it make where you retire? You’d owe (or not owe) taxes to the US.
Do you have kids? If not, any kid you know you’d like to help out? Open a 529, can get a deduction there.
Request a return of (excess) contributions from the traditional IRA and increase the 457 contributions.