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Retirement Options Question...

A

AmpedSilence

Platinum Member
SO, my company doesn't offer a 401(k) until after being with them for a year. It's annoying.

What pre-tax retirement savings options do I have? I am looking at IRAs but they have a limit of $4,000; i need something that i can invest about $7,500 or so in.

TIA
 
Why not just park the non IRA eligible remainder in a normal account (index mutual funds/ETFs)?

 
No tax discount; i need to get under the magical 60k number so i can take student loan interest deductions; else i can't claim them on my tax return. I have to confirm this; but this from Dad who is an IRS Enrolled Agent, so i tend to believe him.
 
Put $4k in a traditional and $4k in a Roth IRA (yes, it's not pre-tax, but it's still a good way to diversify your portfolio since you don't get taxed when you withdraw during retirement).

Edit: now I see why you want it pre-tax. Don't really know how to help you there since Roth contributions don't change your AGI.
 
Originally posted by: AmpedSilence
No tax discount; i need to get under the magical 60k number so i can take student loan interest deductions; else i can't claim them on my tax return. I have to confirm this; but this from Dad who is an IRS Enrolled Agent, so i tend to believe him.
Click to expand...
It isn't worth it. Student loan interest deduction is slashed near the limit. That means, if you are just barely under the cutoff, you just get a small portion of your student loan deducted.

 
Read page 33. If your AGI is under $65,000 you can get a student loan interest deduction. However, if the AGI is between $50,000 and $65,000 you only get a portion of that deduction (depending on how close you are to $50,000).

Examples in numbers:
[*]Suppose you have $20,000 in student loans at 5% interest. That is <$1000 in interest.
[*]Suppose your AGI is $70,000 without changing things around.
[*]Thus, to get to the cutoff, you'd need $5000 in retirement savings (or other deductions). Lets pretend you really could find a way to get $7,500 into a retirement account.
[*]Your AGI becomes $70,000 - $7,500 = $62,500.
[*]Your student loan deduction is therefore: ($1000)*($65000 - $62500)/($65000 - $50000) = $166.
[*]At that AGI if you are single, you are in the 25% tax bracket.
[*]A $166 deduction thus saves you $166*25% = $41.50. Note: this doesn't count state taxes since I don't know your state income taxes.

You are doing an awful lot of work to save a measly $41.50 in taxes. Not only that, but it'll probably cost you nearly that much just to open an account (often there is a ~$10 opening fee + $10 yearly fee + other fees).

Plus, I don't think you can get around the IRS limits to begin with.
 
Hmmm... i'll have to look at the numbers that my Dad gave me again. IIRC, his numbers said that i would save 3k in taxes. That makes it worth it.
 
Originally posted by: AmpedSilence
Hmmm... i'll have to look at the numbers that my Dad gave me again. IIRC, his numbers said that i would save 3k in taxes. That makes it worth it.
Click to expand...
If you could put $7500 into a retirement account (not allowed), you would save 25%*$7500 = $1875 for having the retirement account. Then if your numers are anywhere like what I posted, you'd save another ~$41 for the student loan deduction. State taxes aren't included, so bump that up.

It is a good idea to save for retirement. And you'll save a lot in taxes now. But those tax savings come from the retirement account, and NOT from the student loan deduction.

Also note, you'll pay close to the $1875 in taxes (adjusted for inflation and growth in stocks) when you retire so really you are just postponing the taxes and not getting lower taxes. Do I need to make a post on the fallacy of IRA tax savings?
 
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