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tax day decision

April 18th, 2017 at 07:01 am

As usual, I have procrastinated on my taxes until the last minute.

My taxes are actually pretty straightforward and I entered all of the info into turbot@x late Sunday night. At the moment my federal return is $107 and state return is $16. It’s pretty much a wash since the cost of filing is about $90!

The reason I always wait so long to actually file is because I can never decide if I should contribute to an IRA. And, if I do, which one should I choose – traditional or Roth? I already contribute a lot of money through my work retirement plan. I just did some research and discovered that between my paycheck deductions and my employer contributions, a total of $38,479.08 went into my retirement account during 2016. I think my salary is just shy of $70K. Seems like a substantial amount!

But, then I wrestle with the IRA contribution. I have a very small ($15,726) Roth account because I usually contributed to a Traditional IRA in order to get the tax break. That account is fairly small, too ($70,188), considering the number of years that I’ve had it, because I never took the time to properly invest the money. Frown I’d probably be able to retire at this point, if I had done so!

So, the question is, do I put money into my Roth IRA (up to $6500 since I’m over 50) so that I have a bit more non-taxable income to draw on when I’m older? Or should I use the money for house projects and other current needs/wants rather than putting so much towards retirement? I could also contribute to the Roth and decrease my 2017 retirement contributions through work if I decide that I need more cash flow this year.

Definitely not a problem to complain about, I just feel confused each year by the decision and it weighs on me until I finally make a choice at the last minute. In the end, it really doesn’t matter what I choose to do…life will go on either way.

I just called the firm that manages my retirement accounts and found out that I have until 10p tonight to make a contribution. Now I can procrastinate all day! Frown I also found out that I contributed $1700 to my Roth and $300 to the traditional for 2015 (on April 15th, of course!). Seems kind of random!

Each year, I think about setting up a monthly auto deduction in order to avoid this situation, but then I forget to do it.

Hope everyone else is long done with their taxes and can enjoy the day! Smile

7 Responses to “tax day decision”

  1. MonkeyMama Says:

    Personally, I'd max out the ROTH. If you need the money, it's easy to access. If not, then it grows tax free indefinitely. Very win-win.

    I say this because you have $100k+ in cash and brokerage. I personally wouldn't put a penny in a taxable investment account until ROTHs were maxed out first. Unless you 100% knew you were going to use the money in the short-term. But if any uncertainty whatsoever, I'd take advantage of the tax shelter.

    I guess I'd view it more as moving existing assets over to a tax shelter. Otherwise, I'd say that saving 50% of your income is more than enough. But you can be more tax efficient with your assets, so is why I recommend.

  2. starfishy Says:

    MM - thanks for this information! If you have a moment (i know you are busy with tax season!), can you tell me how the money is easy to access if it's in a ROTH? that's the part i don't understand.

  3. MonkeyMama Says:

    You can take out the contributions any time without any tax consequences or penalties. It just gets more tricky if you want to take out any earnings (gains) from the account. But the original contributions are easy to access.

    Here's a link that explains it: http://www.mymoneyblog.com/can-i-really-withdraw-my-roth-ira...

  4. starfishy Says:

    oh, boy, i've been interpreting the rules of withdrawing from an Roth for many years. Frown guess i will have to go with the better late than never mantra...thx MM!

  5. LivingAlmostLarge Says:

    roth as well.

  6. snafu Says:

    Do you know how your work's retirement program divides your contributions and employer's contributions? I hope you understand how much the firm that manages your IRA/ROTH charges and how your investments mesh with work's plan. It's is very easy to start an automatic plan so that a specific sum automatically goes to retirement every month just like a utility bill. You can change it with a few computer clicks.

  7. rob62521 Says:

    If it were me, I'd choose the Roth.

    I take it you need a deadline to get you moving. Smile

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