vania-janet/multiturn-rag-retrieval-data huggingface dataset:
1) Your IRA contribution amount is based on your yearly income, and if you exceed the cutoff (http://www.irs.gov/retirement/participant/article/0,,id=202518,00.html) for the year, then you are not eligible to contribute at any point during the year. 2) No - the AGI limits just apply to new contributions. You can still have an IRA, you just can't add to it. If your income drops, then you will be eligible again. 3) If you have high-deductible insurance, then I think that an HSA is the best place for your money. It works like an IRA, as you can withdraw money when you retire, but you can also use the money now for health expenses. There aren't really many other options. Tax benefits aren't generally offered to people making as much as you will be.
A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you expect to grow over the long term, like equities. You should keep emergency funds either in federally insured, extremely liquid accounts (bank savings) or money market funds (which aren't insured, but are close enough to zero-risk). Yes, the interest rates are terrible right now. But anything else would potentially leave you with insufficient funds in the event of, you know, an emergency.
Only your contributions count. There should be no ambiguity in what you contributed to the IRA. The IRA should have sent you a Form 5498 at the beginning of the next year detailing what you contributed that year. This is important because there are limits on how much you can contribute to an IRA per year. You don't need to fill out the form in a following year if you've made no nondeductible contributions (or Roth IRA conversions or any of the other stuff on the form) that year.
You asked some direct questions, here are some direct answers: 10% of your salary is a popular rule of thumb. An IRA account is something to consider, you can open one with any of the major discount brokers and select an S&P 500 index fund for your investment. You can let it sit. That's the beauty of an index fund, it simply matches the market and you don't have to worry about trying to beat the market because you ARE the market! The average annual return for the S&P 500 Index has been around 10% (since inception). That's no guarantee, and some years are more or less and up or down. Over the long run, it goes up.
Comparing retirement savings to ordinary investment is not an apples-to-apples comparison - retirement savings are savings for retirement - if you want to invest in things now and live off of (or reinvest) those earnings, then retirement accounts are not the right vehicle.   That said, here are some benefits of the main types of retirement accounts: Benefits of a 401(k): Benefits of a tratitional IRA: Benefits of a ROTH 401(k): Benefits of a ROTH IRA: (the benefits above are not exhaustive, there are other benefits such as using a ROTH IRA for higher ed. expenses, etc. but those are the highlights) If you have a plan for how you hope to use the money now rather than later does it make sense to hold onto it? If your plan is meant to provide income at retirement, and earns returns higher than the returns plus matches and tax benefits you get from retirement accounts, then yes, it may make more sense, but those benefits are generally very hard to beat.  Plus, having the money locked away in an account that is painful to tap can be a good thing - you're less tempted to use that money for foolish decisions (which everyone makes at some point).
The IRA custodian is supposed to pay the formation costs.  If the IRA owner does it then there is a problem. In some structures, the IRA owner, custodian, trustee, administrator, etc may involve some of the same people. Pay very close attention to these words in the structure you are setting up.
All money distributed from a Traditional IRA to which no nondeductible contributions have been made is taxed as ordinary income. It does not matter if you think of the money as the original contribution or gains; the taxation is the same.  Money distributed from a Roth IRA is tax-free.  In either case, penalties apply if the distribution is premature.
The idea behind a Roth IRA is taxes will go up in the future so you are best off paying less in taxes now than in the future, which is why Roth IRAs are contributed to with post-tax dollars whereas traditional IRAs are contributed to with pre-tax dollars. The theoritical advantage comes when you want to withdrawal your money. With the traditional IRA, when you withdrawal money, you pay ordinary income tax on all withdrawals. With a Roth IRA, all withdrawals (after the age of 59 1/2) are tax free, including any gains you may have made. To illistrate, with a very simple example, assume you make $50,000 and your IRA grows at 5% for 40 years. Traditional IRA - $5,000 Roth IRA - $3,750 ($5,000 after taxes) Traditional IRA - $604,000 Roth IRA - $453,000 Traditional IRA - $604,000 / 15 = $40,266 * 75% (25% tax) = $30,200 / year Roth IRA - $453,000 / 15 = $30,200/ year First, this was not a contrived example and I was surprised the numbers worked out this way. Second, as you can see with this example there is really no advantage either way unless you by into the theory of higher taxes in the future.
"The money you invested in your Roth was taxed as income when you filed your income tax.   A Roth contribution is ""post-tax"" as opposed to a standard IRA or 401k contribution which are ""pre-tax"". Pre-tax contributions lower your taxable income for the year. In example, you had income of $100,000 and made a standard IRA contribution of $5000. Your taxable income would be $95,000. In the case of a Roth contribution, the same $5000 investment would not reduce your taxable income for the year."
Yes, eligibility for contributing to a Roth IRA is determined by your Modified Adjusted Gross Income (MAGI) which is based on your Adjusted Gross Income (AGI). Now, AGI includes the net capital gains from your transactions and MAGI adds back in things that were subtracted off (e.g. tuition deductions, foreign earned income exclusion) in arriving at the AGI. There is a worksheet in Publication 590 that has the details. You are always entitled to contribute to a Traditional IRA. The MAGI affects how much of your contribution is tax-deductible on that year's tax return, but not your eligibility to contribute.  Both the above paragraphs assume that you have enough compensation (wages, salary, self-employment income) to contribute to an IRA: the contribution limit is $5500 or total compensation, whichever is smaller. (If you earned only $2K as wages, you can contribute all of it; not just your take-home pay which is what is left after Social Security and Medicare taxes, Federal taxes etc have been withheld from that $2K). If your entire income is from capital gains and stock dividends, you cannot contribute to any kind of IRA at all.
Since you are paying taxes on the distributions from your mutual funds anyway, instead of reinvesting the distributions back into the mutual funds, you could receive them as cash, then contribute them to your Roth IRA once you are able to open one.
The Roth is the mirror image of the Pre-Tax (traditional) IRA. The latter gives you a tax break now, the deposits go in pre-tax, and are withdrawn at your rate in retirement. The former lets you squirrel that money away now, post-tax, but never pay tax again.  For young folk the Roth is a great way to go. My 12 year old has a Roth account, and paid no tax since she has her own exemption. At your level, you are probably in the 10% bracket now. Imagine investing that money and at retirement finding it's grown 100X (very possible), if it were in a Roth, you'd have no tax due.  As BST noted, you are always free to withdraw the deposit, so if you decide this wasn't money you could actually put away long term you still have an out.
Nowhere. To back up a bit, mutual funds are the stock market (and the bond market). That is, when you invest in a mutual fund, your money is ultimately buying stocks on the open market. Some of it might be buying bonds. The exact mix of stocks and bonds depends on the mutual fund. But a mutual fund is just a basket of stocks and/or bonds (and/or other, more exotic investments). At 25, you probably should just be investing your Roth IRA in index stock mutual funds and index bond mutual funds. You probably shouldn't even be doing peer-to-peer lending (unless you're willing to think of any losses as the cost of a hobby); the higher interest rate you're getting is a reflection of the risk that your borrowers will default. I'm not even sure if peer-to-peer lending is allowed in Roth IRA's.  Investing in just stocks, bonds, and cast is boring, but these are easy investments to understand. The harder the investment is to understand, the easier it is for it to be a scam (or just a bad investment). There's not necessarily anything wrong with boring.
if you have a work-sponsored retirement plan  A 401k plan counts as a work-sponsored retirement plan. If you are a highly compensated employee (this is $115,000 for 2012), even your 401k contributions are limited.  Given that, is there any difference at all between having a traditional IRA and a normal, taxable (non-retirement) investment account?  You should consider a Roth IRA if you are making too much for a traditional IRA. When you make even more, then you can't contribute to a Roth, but can only contribute post-tax money to a traditional IRA.  Use Form 8606 to keep track of non-deductable contributions over the years. Publication 590 is the official IRS explanation of what is deductable or not.
"This is a fascinating question. I am posting here only a partial answer because I haven't found official sources. The upshot appears to be that a Puerto Rico IRA is a wholly different thing from a US IRA, and different rules apply. This is said most succinctly in this post on the Boglehead forums: US federal tax code and Puerto Rican tax codes are separate. By contributing to a U.S. IRA, you defer US taxes. You need to pay these deferred US taxes, and take an early withdrawal penalty too, if you want to move the asset to PR. Other web pages give similar information, for instance, this post from ""Accountant Forums"": The Puerto Rico (PR) Internal Revenue Code (IRC) defines a Puerto Rico IRA (I am assuming that this taxpayer has a PR IRA.). It is unfortunate that they chose to use the same name as the US IRC uses. A PR IRA is not a US IRA. It has different tax rules. In addition, the US IRC defines an IRA as being ""a trust created or organized in the United States."" The US IRC (Sec. 7701) defines the United States as being the 50 states and the District of Columbia. The Bogleheads thread also contains a link to a document from a Puerto Rican CPA school which appears to be a FAQ, and says (translated here from Spanish): Thus, any distribution from an IRA established in Puerto Rico does not qualify to be transferred to an IRA established outside Puerto Rico without the imposition of penalty and/or payment of corresponding income tax. In the same way, the transfer of an IRA established outside Puerto Rico to one established in Puerto Rico also does not qualify as a transfer. It is not clear whether the exact meaning of ""transfer"" (given as either ""transferencia"" or ""traspaso"" in the document) corresponds to the US usage of IRA transfers (i.e., nontaxable events); some information I found indicates that the end of the quote above might be translated as ""does not qualify as a rollover"". In any case, it seems that moving an IRA to or from Puerto Rico at least potentially has tax consequences.
"One difference is in the ability to split the pre-tax and after-tax portions of the Traditional account. (Note that earnings in a Traditional IRA or Traditional 401(k) are always pre-tax, even if it was earned from after-tax money, so if you left the money for some amount of time after an after-tax contribution, chances are it's a mix of pre-tax and after-tax money.) When you take money out of a Traditional IRA, including for conversion to a Roth IRA, you are generally subject to the ""pro-rata rule"", which means that your withdrawal will consist of pre-tax and after-tax amounts in the same proportion as in your whole Traditional IRA. This means that a conversion of a Traditional IRA with any mix of pre-tax and after-tax amounts, will always be taxed on a portion of the withdrawal (the pre-tax portion), and it will leave some after-tax amounts in the Traditional IRA unless you take everything out. The only way to separate the pre-tax and after-tax amounts is to roll over to a Traditional 401(k) (if you have a 401(k) plan that allows this); rules say that only pre-tax amounts can be rolled over into a 401(k), so only pre-tax amounts are rolled over, and if you roll over all the pre-tax amounts, only after-tax amounts will remain. On the other hand, when you rollover your entire Traditional 401(k) to IRAs, you can choose to have the pre-tax portion rolled over to a Traditional IRA and the after-tax portion rolled over to a Roth IRA, separating them, due to IRS Notice 2014-54."
The original contribution of X to Roth IRA in your reasoning is a red herring. It doesn't exist, never happened. You recharacterized it, so what you did in reality is contribute X to Traditional IRA.
You can take the old 401k and convert it to an IRA just about anywhere.  No accountant required.  Borrowing against the IRA/401k is a very stopgap measure, be sure you know what you are getting into.  A distribution from it is a 10% penalty before age 59.5.
There are no immediate tax-related benefits to putting money into a Roth IRA. You are investing after-tax money in the hope that the rules won't change and you'll be able to take out the money tax-free when you retire. Under current rules, you can take out your contributions at any time without penalties or taxes. You can't take out earnings without penalties until you retire. You said you don't have any debt (great!). So if you have cash that you don't have other uses for, and you don't mind possibly tying it up for a long time, you can put money into a Roth IRA. I'd argue that if you have, say, $25-50/month to put into long term savings, it's a good habit to start. When you move into a job that gives you more disposable income, you can increase this amount. The earlier you start, the lower the monthly amount you'll need to contribute towards a comfortable retirement. Once you get started putting a little bit away, you'll never miss it.
Putting money into a Roth IRA or 401(k) will save you money if your taxes this year will be lower than your taxes in retirement. See also the Wikipedia retirement-savings matrix.
"Whether you contribute to an IRA (Traditional or Roth) and whether you contribute to a 401k (Traditional or Roth) are independent. IRAs have one contribution limit, and 401ks have another contribution limits, and these limits are independent. I see no reason why you wouldn't maximize the amount of money in tax-advantaged accounts, if you can afford to. In your first year of work, especially if you only work for part of the year, you're likely in a lower tax bracket than in the future, so Roth is better than Traditional. Another thing to note is that the money in the Roth IRA can be part of your ""safety net"" -- contributions to a Roth IRA (but not earnings) can be withdrawn at any time without tax or penalty. So if there is an emergency you can withdraw it, and it wouldn't be any worse than in a taxable account. And if you don't need it, then it will enjoy the tax benefits of being in the IRA."
These are plans similar to 401k plans. 457(b) plans available for certain government and non-profit organizations, 403(b) available for certain educational, hospital, religious and non-profit organizations. Your school apparently fits into both classes, so it has both. These plans don't have to allow ROTH contributions, but they may, so you have to check if there's an option. The main (but not only) difference from IRA is the limit: for 401(k), 403(b) and 457(b) plans the contribution limit is $17500, while for IRA its $5500 (for 2013). Additional benefit of 457(b) plan is that there's no 10% penalty on early withdrawal, just taxes (at ordinal rates).
When you pick a company for your IRA, they should have information about rolling over funds from another IRA or a 401K. They will be able to walk you through the process. There shouldn't be a fee for doing this. They want your money to be invested in their funds. Once your money is in their hands they are able to generate their profits.  You will want to do a direct transfer. Some employers will work with the investment companies and send the funds directly to the IRA. Others will insist on sending a check to you. The company that will have your IRA should give you exact specifications for the check so that you won't have to cash it. The check will be payable to you or the IRA account. The IRA company will have all the details. Decide if you will be converting non-Roth to Roth, before doing the rollover.
"This does not apply to Roth IRAs. It defines the difference between the two depending on what your age is when this happens. If you are 59 or younger, you have a 10% penalty in addition to taxes. If you are between 59.5 and 70, there is no penalty, but you do have to pay taxes. If you are 70.5 or older, then you MUST withdraw money, and that withdrawal is called the ""required minimum distribution"" and you pay taxes on it as if it were income.  In terms of investments, the two are the same in that the earnings you make on your investments grow tax free.  Here is more information between the two.  *Improvements are welcome for my answer."
You can't roll it over to a Roth IRA without tax penalties.   The best thing to do is roll it to an IRA that isn't tied to work at all.  Second best is to roll it into your new employer's 401k.  The reason that an IRA makes sense is that it gives you the same tax savings as a 401k, but it allows you to remain in control of the money regardless of your employment status.
"Chris's answer is a great start. Keep in mind that when you withdraw from a Roth IRA, you ""shrink"" the size of the IRA (i.e. if the start up flourishes, you can't put the $10k you withdrew back, as you're limited to ~$5k in contributions per year). You may want to consider funding your startup with a credit card (ideally a balance transfer of $10k at 0% interest).  If you need to, you can always pay your card off with your Roth balance, but if the startup takes off, your IRA is unharmed. (On a side note, I wouldn't feel comfortable quitting my job to do a startup with only $10k in savings, but to each his own!)"
"This answer is provided mostly to answer your question ""what is it?"" A variable annuity is a contract between you and an insurance company. The insurance company takes a bunch of money up front as a lump sum, and will pay you some money yearly - like earning interest. (In this case, they will probably be paying you the money into the account itself). How much they return is, as the name suggests, variable. It can be anything, depending on what the contract says. Mostly, there will be some formula based on the stock market - frequently, the performance of the Standard & Poors 500 Index. There will typically be some minimum returns and maximum returns - if the stock market tanks, your annuity will not lose a ton of value, but if the stock market goes up a lot in one year (as it frequently does), you will not gain a lot of value either. If you are going to be in the market for a long amount of time (decades, e.g. ""a few years out of college"" and then a little), it makes a lot more sense to invest in the stock market directly. This is essentially what the insurance company is going to do, except you can cut out the middleman. You can get a lot more money that way. You are essentially paying the insurance company to take on some stock market risk for you - you are buying some safety. Buying safety like this is expensive.  Variable annuities are the right investment for a few people in a few circumstances - mostly, if you're near retirement, it's one way to have an option for a ""safe"" investment, for a portion (but not all) of your portfolio. Maybe. Depending on the specifics, a lot. If you are under, like, 50 or so? Almost certainly a terrible investment which will gradually waste your money (by not growing it as fast as it deserves to be grown). Since you want to transfer it to Vanguard, you can probably call Vanguard, ask to open a Roth IRA, and request assistance rolling it over from the place it is held now. There should be no legal restrictions or tax consequences from transferring the money from one Roth IRA account to another."
HSAs are very similar to IRAs. Any investment returns grow tax-deferred and once you reach age 59 1/2 65, you can withdraw the funds for any purpose (subject to ordinary income tax), just like a traditional IRA. If you can afford to do so, I would recommend you to pay medical expenses out-of-pocket and let the funds in your HSA accumulate and grow. In general, the best way to allocate your funds is in the following order: Contribute to a 401(k) if your employer matches funds at a substantial rate Pay off high-interest debt (8% of more in current environment in 2011) Contribute to an IRA (traditional or Roth) Contribute to an HSA Contribute to a 401(k) without the benefit of employer matching One advantage of HSAs versus IRAs is that you don't have to have earned income (salary or self-employment income) in order to contribute. If you derive income solely from rents, interest or dividends, you can contribute the maximum amount ($3,050 for individuals in 2011) and get a full deduction from your income (Of course, you will need to maintain a high-deductible health plan in order to qualify). One downside of HSAs is the lack of competitively priced providers. Wells Fargo offers HSAs for free, but only allows you to keep your funds in cash, earning a very measly interest rate, or invest them in rather mediocre and expensive Wells Fargo mutual funds. Vanguard, known for its low-fee investment options, provides HSAs through a partner company, but the account maintenance charges are still quite high. Overall, HSAs are a worthwhile option as part of your investment plan.
Since you say you are a student, perhaps you should look carefully at the requirements for contributing to an IRA, whether Traditional or Roth. Unless Congress changed the law recently, one has to have earned income to contribute to an IRA.  So if you were a teaching or research asssistant receiving W-2 wages while completing your Master's degree, you are eligible, but if you had a fellowship you are not eligible (unless you had other income, whether W-2 wages or self-employment income reported on Schedule C).  The amount that one can contribute is the smaller of your earned income and $5000 ($6000 for 50 and older people).
"The most common use of non-deductible Traditional IRA contributions these days, as JoeTaxpayer mentioned, is as an intermediate step in a ""backdoor Roth IRA contribution"" -- contribute to a Traditional IRA and then immediately convert it to a Roth IRA, which, if you had no previous pre-tax money in Traditional or other IRAs, is a tax-free process that achieves the same result as a regular Roth IRA contribution except that there are no income limits. (This is something you should consider since you are unable to directly contribute to a Roth IRA due to income limits.) Also, I want to note that your comparison is only true assuming you are holding tax-efficient assets, ones where you get taxed once at the end when you take it out. If you are holding tax-inefficient assets, like an interest-bearing CD or bond or a stock that regularly produces dividends, in a taxable account you would be taxed many times on that earnings, and that would be much worse than with the non-deductible Traditional IRA, where you would only be taxed once at the end when you take it out."