Mailbag: All Of Your 2025 IRA Questions, Answered
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To learn more, visit plan E F E outcome, slash her money and schedule your complimentary wealth check up today. Love the holidays, but hate grocery shopping. I get IT. I love cooking for my family on thanksgiving, but I can be a little stressful to see all the items adding up, but i'll let you in on a little secret that makes IT all less stressful. I bought IT.

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All you have to do is shop with your favorite retailers and upload your receipt, download I bought up up now and use code her money to get one hundred percent back on your thanksgiving peace starting november first, just go to the APP store or google play store and download the free I bought a APP and use code her money yes, I bought a in the google play or APP store and use code her money everyone, i'm gene chek. Thanks so much for joining me today on her money. So one thing we have learned about all of you and by all of you, I mean our listeners, and it's that you really cannot get enough content on retirement whenever we roll out an episode on retirement.

And I think the the most clear example of this was the episode that we ran with Christian vents, the author of the new book, which is selling like hot cakes. How to retire. IT just went through the roof and we brought back for a mailbag.

And we are once again turning to the topic of retirement because IT is one of those periods in life where we start thinking about heavy up on our retirement contributions as we close in at the end of the year and year. And money moves and things that have to do with I rs at slot, as many of you know, is my go to on this, on everything I R A. He is a cpa, he's a best selling author.

He is a nationally zed I R A expert. And again, our episodes with ed are consistently some of our most listen to episodes. And one of the reasons besides the fact that that is a bit of a genius s is that I isn't really complicated.

They take many shapes and many forms. The tax treatment of them seems to change on the regular. We need help. So this week, I was kind enough to come on back and tackle some questions from all of you about your iras and welcome.

Well, thank you for that great intro, but you're write IT is horribly confusing. It's almost not even fair that is so hard to get your own money out of your retirement savings without stepping on one least .

taxes and minds yeah I think about IT as I think about my own retirement and whether i've got the right baLance of money in a rough iras for one case, rough for one case these days, it's a home me of things. Before we get to our questions, though, from our audience, I have one for you of my own. We just had an election in this country.

I don't know. I heard, I know we did. We just had an election. Donald trump is headed back to the White house. What does this mean for our retirement investments?

Well, I think you're going to have an extension on my own. I don't have any inside knowledge, but I think they'll be an extension of the tax cuts. That's probably the first thing that seems almost obvious. Remember, some of these tax rates are supposed to go up after twenty, twenty five. I think they'll be extended in some fashion, but probably not over the top is just reading a piece in the wall street journal recently or even their editors say you that good, but too much, maybe not good if we blow out the deficit debt levels.

right? So if they have to be careful that not only are they extending the tax cuts, but they're doing IT in a way that we can actually pay for these things.

I mean, again, IT comes down to basic math. The more you give, the more you take. It's over. Same pile of money.

Yeah, yeah. But I be in president elect trump s saying growth will pay for these things. Do you think that argument holds water?

Uh, I don't know that happened with the first rounds of cuts of cost of stock market helped a lot of the growth. I don't know if they figured on that, but the growth has been exponential in the market. I so fidelity came out with a report recently more for in k millionaires than ever before.

That's been happening year in and year out over the past decade. IT seems as we turn to I R S, the I R S just announced the contribution limits for four one case. And for I, yes, for twenty, twenty five. Can we just start by going over what everyone needs to know here?

Well, these are the regular cost of living increases, which are not as much as in the first year. They are based on inflation factors, which is relatively low, just like the social security checks didn't go up as as much as I did in other years. So you see modest increases in some of these. But for right now, what you need to know is you still have literally till April fifteen next year to put in your irr a contribution or roth ira a contribution for this year. Most four one k contributions though will have to be made for twenty four by the end of twenty four.

And by the way, if you want a heavy up on a four one k contribution, don't sit on that until the end of december. Your plan, your plan may not be set up to accept IT at that point. If you want to do something, do IT. Now while we still got a little time to run in, in november, get in touch with your planned administrator or your benefits department and just get that in motion.

There is the an important piece of advice, what you just said. They're not only the plans, the custody entire M. R.

M. Don't wait until that last week in december of its mass confusion at the big custodians. In fact, anybody at these big places that knows what they are doing knows to take that week off.

yes. yeah. So in the second quarter of twenty twenty four, speaking of fidelity, fidelity released some data that routh conversions were up forty six percent year over year. What's going on sending them through the roof?

Well, people like tax free. You know, i'm a big road fan. I love tax free. And everybody I know that, listen to me. And did roth conversions for the past over twenty years love having roth ira rays.

Why do they love you so much? Because everybody likes to see in account growth is growing. Absolutely income tax free.

No R N S, no complicated calculations you'd never have to touch IT just grows income tax free if you needed in retirement, you generally take IT out income tax free. Even after the security, you can pass IT of beneficiaries, they can go another ten years. So IT grows x free for you for the rest of your life and ten years beyond to your beneficiaries. And your beneficiaries may be in their own highest earnings year. So it's a big benefit to them to get tax free income.

This has been another up year in the market. Does that make IT a good year to do roth conversions?

It's always a good year to do roth conversions because tax rates are low for most people. We have historical low tax rate people. Let's say, well, I want to do conversions.

I'm going to wait till the market goes up. What goes down, people save the market takes a big drop. Oh, that's when i'll convert.

It's same thing with socks. You can tie the market for roth conversion. If you really want to do that, probably the best way to do that is the suit.

Dollar costs averaging into the rot do a series of smaller routh conversions every month or every year. But I would cautioning against that because the rules changed. H several years ago, years ago, you could undo a rough conversion.

Do you remember that people going back and forth can do that anymore? That's the case since the tax cuts and job deck eliminated what we called roth recharge teriyaki over s IT is no reduce of that anymore. So I would always say, have the conversation do the analysts to see if you want to convert, but don't pull the trigger on that probably till the first week of december.

why? Because you want to know what is going to cost in taxes. And the later you go in the year, but not too late at switch at first week in december, you'll have a Better projection of what your income might be. The reason I say first week in december, that's around right after many of the big mutual fund companies have released their capital gain distribution.

Its which is going to throw you what you of you might think all I can know what my income is now you see all these capital gain distributions from this wild de we had this year and you might take while W I didn't realize I be in that high of a brack and or um I have got a bonus who knows the idea is you want to have a Better estimate of what your income will be so you will know have a Better projection of what rough conversion will cost. And that won't happen till about the first week of december. So you can prepare for IT but don't pull the trigger until you know have a Better idea what the numbers are because you can't undo IT.

Alright, fantastic. Let's move on to some questions from our community. ready?

yeah. ready?

Okay, let's take a question. This one comes from mary lee in our private her money facebook group, and we had a few people actually who had questions along these lines. He says, my partner and I are both retired, will be waiting a few years before we start taking money from retirement accounts.

By then will both be collecting social security. My husband has two pensions as well. We have one after tax for one k and two rough accounts. A simple and a step, I R A. Where do we start to withdraw first? So what i've heard that is that you should take money from the taxable accounts first as a general road.

Yes, in her case, because he said a few things, she's probably, in the sixties, did some social security yet. And one thing I would recommend, in most cases, to hold off on social security to you can lock in the largest check for life at age seventy. So we're not going to take from there. He has a few pensions. So take from the step and symbolic I R raed taxable chances are you're in a much lower bracket and can get that money out and a very low rate. And remember, IT will have to be tax at some point anyway if you do IT now IT doesn't affect social security taxation because enough taking that you'll get a biggest social security check later and probably have lower R M ds required minimum distributions later because you're drawing some of that tax of all money out now.

Okay, fantastic. We've got one from Julie SHE writes, we used my daughters five, twenty nine account to pay her college tuition directly, and then also transferred money to our bank account to pay for her books. SHE has since withdrawn from the program.

I'm hoping her tuition refund will be sent back to the five twenty nine. We'll be trying to sell all of her books. And i'm wondering if I need to deposit that money back in the five twenty nine th. I don't owe taxes on IT or can I just put IT in her roth ira? No.

that a different day, mixing up a couple of provisions. So I don't know. I never heard that you could put refunds back in our five twenty nine, so that could be a new one on me.

I never even thought of that. I did even think you could make that much money selling the use books, but I understand books are pretty expensive now. But there is a provision where you can roll five twenty nine money over to ross that's relatively knew if it's not needed.

There are a couple of conditions the five twenty nine has to be for, they say the student, the person with the roth array has have been open fifteen years and contributions the last five years dog count. But the big limitation is thirty five thousand lifetime, and it's limited to the amount you could have put in a rough I, which is seven thousand for twenty four. So that's the most you might be able to contribute. So that maybe what he was referring to because it's been a lot of news about these new five twenty nine to routh of rollovers allow. And even if financial advises a confuse, so that first came out, they thought, oh, we can transfer hundreds of the thousands of the five twenty the it's generally gonna be about seven thousand a year, say over five years as you're thirty five thousand and that's about IT and that if you meet all of those conditions, plus to do that, he would actually have to have compensation, be able to contribute to a rough, otherwise contribute, even if he does, and to a rough ira, by having a wages or self employment income. There a lot of conditions, but I don't know about the refund thing.

Julie. I would actually pick up the phone and I would call the five twenty nine administrator. The rule with five twenty nine withdraws is that they have to be used for qualified educational expenses.

You use them for qualified educational expenses. So I am not sure how they're going to tell you to handle the refund of this tuition since he was enrolled in school. My guess is that this would not catch up with you, but I do believe that IT is wise to be as straightforward as you possibly can.

So give the five twenty nine planet car, they am sure deal with this all the time and ask them what the easiest thing is to do from their perspective. And for yours, we are gonna a very quick break and will come back with a slot. Her money is proudly sponsored by adult financial engines.

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You deserve to feel great. Book your virtual visit today and join midi dot com that's join M I D I that com. We are back with a slight expert on all things I R A. Our next question that ad comes from jammy SHE says my full time employer does not offer any type of retirement fund. Last year I maxed out my rough.

But i'm wondering, since i'm also a super prior of my own business, can I open a by R A? And what i'm asking, is there such a thing as a step rot? In other words, can I max out my rot and also open a sep ira? Or must I do one or the other?

You can max out your roth and open a step I ra, or if you can get in a step roth ira, that kind of? No, they're actually been around the euro to but from what i'm hearing, not many kaolians are geared up for these things. But yes, there is a sep roth ira, which is a great way to go. And you could also do your own rough I R A contribution.

Are there any limits on doing both? I mean, I know that there are limits on how much you can put into a rough and there how much you can put into accept. But no limits.

There are limits for the step. I am am looking at the limits for chances are it's not going to be you know for two two thousand and twenty four, twenty five percent of the year come up to three hundred forty five thousand dollars. So essentially high limit, the might say for that the earth array of seven thousand limit, or if you fifty year over another thousand and eight thousand 啊。 But the rough I R A has income limits. If you're very high income, you can contribute to A H. And the .

distinction here is that, for jay, the income from her full time job is what funds the rough contribution. The income from her own business is what funds the sap. Nicky wonders, is there an in its kind of a related question, is there are an easy way to know whether I still qualified to put money in my roth I R. A? I recently got married and we now file taxes together.

O okay, if you file jointly then the income limits a hier um for example of looking at the now for twenty twenty four a married couple to get the full wth contribution can go up to two hundred and thirty thousand of incomes such a pretty level IT faces out two thirty to two hundred forty thousand. And after two hundred forty thousand you can do rough contributions. But even if you are over that, there's something called the back door of you could make a contribution to your traditional ira and then convert IT to a rough and come back to the same place.

fantastic. Finally, we've got an investment question from san SHE writes, after listening to your podcast in reading her money articles, I learned how to open a rough I A and decided I wanted to focus on low cost index funds. I researched, decided my criteria, and I feel really good about my choices.

Some background and fifty one contribute fully to my four one k, which is ninety percent in a target date fund and ten percent in company stock. But I didn't start saving for retirement until I was forty two. I have an emergency fun with two months of expenses and with maxing out my far one k and rod, i'll spend the rest of the year or so funding my job loss fund, which is six to twelve months of expenses.

So my question is, as i'm adding to this routh array every year, I feel like I wanna stay on the low cost index fund route. But should I stick with three to five index funds? Or should that number be much higher? I think she's asking from a perspective of diversification since much of her money is in that target date fund .

well on an investment guide. But just from consolidation purposes, if each of the funds is do essentially the same thing, then why do need five of them unless there in five different categories?

Yeah I I would save from the perspective of diversification, you want a total stock market index fund, a total bond market index fund, maybe some additional international exposure, but that really should do the trick for you. I wouldn't go crazy trying to cover and then recover your bases because what you learn very quickly is that you're doubling up.

And if you want to be consistent with what's going on in your target date fund, look at the mix in your target date fan. It'll give you a breakdown of what you've gotten stocks, what you've got in bonds, what you've gotten international. It'll break down by types of stocks and bonds, and you can mirror that essentially so that you've got the same thing going on inside your workplace plan and outside your workplace plan.

Good luck with that, and congratulations on doing all the great work. And thank you so much for this. Thank you for the answers.

Thank you. IT sound like that less exams with A A loyalist er of you is all the things you talk about. It's like SHE was checking him off and here at the emergency on this one, he's everything going on.

You know, I love to hear that. Thank you for being with us. A happy, happy thanksgiving.

Yep, same to you. Thanks, drink.

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