Starting an IRA around Tax Season

Discussion in '401k, IRA and Retirement' started by SandyM, Jan 9, 2016.

  1. SandyM

    SandyM Well-Known Member

    Apr 2014
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    I've noticed that as you fill out forms on Turbo Tax, HR Block, or other tax software, there are often ads and advice about opening an IRA around tax season. The basis is that if you have an extra $5,000, the wise thing to do is to put it into starting an IRA or similar account before filing. That way, it counts as non-taxable income. Has anyone tried this strategy? If so, what management company did you use?

    I think I also read somewhere that it can backfire in the long run if you don't know what you're doing, meaning that with the current tax rules, you can still be taxed when you are 65 years old and start cashing out on these accounts. I think I read that this actually happened to Mitt Romney and people were mocking him for it. Hopefully I'm wrong and they were twisting the story to make fun of Romney.

    Any advice on starting an account around tax season would be helpful. Thanks!
  2. baudwalk

    baudwalk Senior Investor

    May 2015
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    I would suggest you do some some research on the type of IRA appropriate for your situation that may include such factors as age, retirement sge, employment pension or deferred savings plan, and Social Security. Perhaps these links may help.

    Additionaly, search this board for JR Ewing's numerous posts on IRAs. The -Bogelheads wiki and discussion boards have lots of information; membership is free.

    I opted to open our IRAs with Fidelity for a one-stop shop of banking, investments and IRAs; I prefer to have a firm with a brick-and-mortar storefront for dealing with account forms or discussions with a certified financial planner (CFP). Paperwork is simplified; my tax guy loves it. Schwab and other firms have similar one-stop offerings. Perhaps the same concept may work for you.

    HTH. YMMV. Let us know it goes.
  3. JR Ewing

    JR Ewing Super Moderator Staff Member

    Feb 2014
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    Good info from baudwalk as usual.

    In general, the idea of setting up an IRA is a good idea for those who have earned income. Mainly because this is an excellent way to invest earned income for longterm retirement planning in a way that is either tax-deferred (traditional IRA) or that grows to eventually be tax-exempt (Roth IRA funded with after-tax earned income IF you are under the income limit to qualify).

    Whether you set it up before you file or after you file with a tax refund, either way it is generally a very desirable thing to do if you have earned income. The best thing to do is add the maximum to it each year so that it grows over time. Another good thing about either IRA is that because it defers (or eventually eliminates with the Roth) taxes is that you can take profits on investments within the IRA without worrying about being hit with capital gains taxes at the end of each year the way you are in a taxable account.

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