Elizabeth Richardson wrote:

snip
- quote -

The income limit only applies if you are covered by "a retirement plan
at work*". Otherwise no limit.

JOE

*I read this to be 401(k), not a defined benefit (tranditional pension)
plan. On this I may be wrong, but the traditional pensions appear to be
fading away, anyway.

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:WoudnSYZVIXpb1XYnZ2dnUVZ_hSdnZ2d[at]comcast.com...
- quote -

[snip]

- quote -


Oops! The limitations I read were for those covered by a 401k. I failed to
read further. So, what is the income limit for deductibility now? $150k?

Elizabeth Richardson

Jane wrote:
- quote -

That's a bit of a cop-out. He has control over whether he does or does
not bother; anything else is just a convenient explanation for why he
supposedly "should" do what he wants to.

On the OTHER hand, the fact that he brought it up shows that he is
making an effort, and that's probably worthy of some encouragement.

- quote -

That's true. It is not optimal, but it is better than not saving at
all, and by quite a lot.

However, the I Bond thing makes me think part of the reason he hasn't
saved before could be a lack of familiarity with investing. (I'm far
from an expert on it myself -- just learning, in fact, which is why
I'm here -- so I can relate to the feeling of confusion and
unfamiliarity.) When you're not familiar with something, having
to make a decision creates confusion and uncertainty (and often
frustration), and you tend to gravitate towards the things you
understand. With I Bonds, it's easy to understand how they work,
and it's easy to see that it's very unlikely they'll go horribly
wrong, which makes them appealing, even though in reality they are
sub-optimal.

The point is, maybe it would help if it were demystified a little
bit. If he knew a little more about the nuts and bolts of investments,
he might feel more comfortable with them, and not only be more willing
to do something better than I Bonds, but also might be willing to save
more. Of course, you can't force that on someone; he has to take an
interest on his own. But maybe having some money in an investment
will whet his appetite. (It's amazing how people suddenly start caring
about things when they stand to lose or gain money.)

- quote -

How about a balance between the two? It's hard to argue with the
idea of a balanced approach: what are you going to say? That you
prefer an unbalanced approach? :-)

- quote -

I think that's a good attitude. Nothing wrong with a little mothering,
but people have to know they have to do things for themselves, or human
nature is that they'll let others do things for them...

- Logan

Elizabeth Richardson wrote:
- quote -

OP and the misses make $120K. With no 401(k). Why don't you think the
IRA would be deductible? Looks like they'd be in the 25% bracket, now.

The number is debatable, but before $X are saved pretax, the OP retires
in the zero bracket.

You think this through?
JOE

"Jane" <googlemail2003[at]yahoo.com> wrote in message
news:1170723445.388484.252040[at]h3g2000cwc.googlegroups.com...
- quote -

At his earnings level, he's not going to get to deduct the contribution to
the Traditional IRA from his income anyway, so he might as well go with the
Roth. And with the Roth he won't have to pay taxes on the earnings no matter
what his tax bracket is in retirement.

Elizabeth Richardson

"Jane" <googlemail2003[at]yahoo.com> wrote in message
news:1170723326.394006.267180[at]l53g2000cwa.googlegroups.com...

- quote -

Don't give up! He has made a start by thinking about I bonds, so work with
it. But people here are right when they advise you not to let his problems
wreck your own peace of mind.

You haven't mentioned anything about his wife's degree of financial
expertise and attitude toward saving and investment. Could it be that the
crux of the problem or at least part of it lies in that direction? Just a
thought.

Jane wrote:

- quote -

snip

- quote -

I believe I coined the notion of Roth being 'denser'(tm), and I stand by
that observation. In the son's case, it seems to me that with zero
savings, you are right, he should first put $8000 between his and wife's
IRA. Then take the tax savings, $2000, and invest that.

There is discussion here about oversaving in pre-tax accounts. Saving
your way to a high tax bracket at retirement is not something your son
should worry about right now. And the bubble whereby one hits a 50% tax
rate due to social security anomalies (somewhere in the $40K income
range) is not an issue. Standard deduction and personal exemptions add
up to $17,500 for a couple. This creates a nice zero bracket free amount
they can take from the IRAs each year. Unless and until their savings
are projected to hit that level at retirement, take the pre-tax route,
and invest additional amounts post tax.

For those who will be in a level or higher bracket at retirement than
when working, the Roth IRA (or Roth 401(k)) allow post tax money to be
sacked away, so $15000 in regular IRA might give a net of 10-12K, but
the 15K in the Roths remains 15K. Thus my coining 'denser'(tm).

JOE

On the otherhand, the fact that he's saved nothing at this point for
retirement probably means his retirement tax rate will probably be
next to 0% during retirement unless he somehow ramps his savings rate
beyond aggressiveness.

On Feb 6, 5:30 am, "woess...[at]gmail.com" <woess...[at]gmail.com> wrote:
- quote -

On Feb 5, 11:55 am, "Jane" <googlemail2...[at]yahoo.com> wrote:
- quote -

Hi Jane,
Have you ever heard of "Alanon', it is for people who are too
involved in other peoples issues,usually to do with "Substance
abuse".I am not saying that anyone has this problem,just that we learn
in "Alanon"that we,and our loved ones , are better off,when we focus
on ourselves.I hope you hear this in the generous way it was
written.dale

On Feb 6, 4:56 am, "Jane" <googlemail2...[at]yahoo.com> wrote:
- quote -

Which tax bracket he's in now is only half of the equation. The other
half is which tax bracket he'll be in in the future. Of course, the
latter is impossible to predict, but there's a general feeling that
taxes will go up in the future. So my default advice is to favor the
Roth.

Besides which, a combined salary of $120K puts them squarely in the
25% bracket. Actually, it's conceivable they might be in the 15%
bracket if they have enough tax-exempt income (don't laugh-half of my
income is tax-exempt and I don't even have any kids!). Either way,
they're not in an exceedingly high tax bracket.

--Bill

"Jane" <googlemail2003[at]yahoo.com> writes:

- quote -

Step 1 is to admit you're powerless over obstinateness and that your
relationship with your son's finances has become unmanageable. ;-)

Not sure what's gonna turn the bulb on for him. Maybe he's stubborn
and things need to be his idea for them to hatch. Buy him some hours
with a flat fee financial planner that's known to be good, and that
has a demeanor that you think he'd like or actually go to.

He needs a clue and he's obviously not too keen on taking it from his
mom at 43. :-)

Best Regards,
--
Todd H.
http://toddh.net/

On Feb 5, 4:49 pm, "Don" <dwz...[at]telus.net> wrote:
- quote -

Actually he brought the subject up. He wanted to send us money to buy
I Bonds for him. He knows himself well enough to know if he has to do
anything other than hand us the money he won't bother. I know I Bonds
are not the best solution for retirement savings but if it's all he'll
do it's better than nothing. We can always buy them in his ssn so we
won't have to worry about paying taxes on the interest.

I did tell him that he needed to worry more about retirement than
college tuition because his college educated kids will be able to get
jobs that will allow them to pay off loans. When he retires he won't
have any income unless he's saved some money. I also told him to stay
away from planners trying to sell him life insurance or annuities as
investments.

Oh well, I've had my say with him. Now it's his decision.

On Feb 5, 12:43 pm, "woess...[at]gmail.com" <woess...[at]gmail.com> wrote:
- quote -

I would have thought that at his tax bracket a traditional IRA would
have been a better choice. Not true?


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

In article <1170683526.366362.274690[at]v45g2000cwv.googlegroups.com> ,
"Jane" <googlemail2003[at]yahoo.com> wrote:

- quote -

Is he an employee or a sub-contractor? People in the home
inspection field are often contractors. If so, he has all kinds
of great investment options in plans such as SEP, Simple, Keogh,
self-directed 401K, etc. You can actually put away far more than
a W-2 employee, and at that tax rate, the government does a defacto
match of 1/3.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Jane wrote:

- quote -

Does his wife's company offer anything (401(k) or pension)? How does she
feel about the situation? Why do you think they would be willing to
address this now, if they've made no attempt to save till their 40's?
You are right, that he has no obligation to pay for his kids' college at
the expense of his retirement.
Not to make matters worse, but the higher one's income, the lower the
percentage that will be replaced by social security. At his age, he
should be saving 25% of his gross family income. To answer your
question, they can each put $4,000 into an IRA.

JOE

"Jane" <googlemail2003[at]yahoo.com> wrote in message
news:1170683526.366362.274690[at]v45g2000cwv.googlegroups.com...

- quote -



You have two problems. The first is finding suitable investments for your
son, and the second is getting him to listen and act. The second may turn
out to be a more difficult problem than the first. Usually the situation is
the other way around; that is, sons and daughters with good up-to-date,
internet-based knowledge have trouble getting elderly parents to accept good
financial advice. People are stubborn and do not always look after
themselves.



Your son is lucky; you more or less are in the process of giving him a last
chance at old age security. But a possibility to consider is that he is put
off by your attention to his affairs, which he might interpret as
interference or "nagging." If so the trick is to somehow cajole him into
taking a personal interest in financial matters himself, so that he will
look upon the need for better planning as arising from him, not someone
else. For example, quietly mention the fact that, if he takes care of
himself his own children will not have to look after him in his old age. But
above all, try to prevent him from falling into the clutches of someone
pushing a "get-rich-quick" or "earn 15% interest guaranteed" type scheme!

On Feb 5, 11:55 am, "Jane" <googlemail2...[at]yahoo.com> wrote:
- quote -

I would turn to a Roth IRA first. If you're going to make a maximal
contribution, the Roth is probably a better choice. The reason is
that the Roth is 'denser' than a traditional IRA. Of the money you
contribution to a traditional IRA, some of it belongs to the
government. The money in a Roth is all yours. Instead of putting in
pre-tax money, you put in after-tax money and then all the earnings
are tax-free.

I think the Roth is a good place to start. After that, there's
nothing wrong with an old-fashioned after-tax account. It's certainly
not as great as a tax-advantaged account, but it's not bad. And it
has the advantage that the earnings are taxed as dividends and capital
gains, not regular income. You can also defer the majority of
incremental taxes on capital gains and dividends by investing in tax-
efficient mutual funds.

Others might suggest your son turn to a variable annuity. This is a
very divisive topic in this newsgroup. I, personally, steer clear of
them. If your son has a LOT of taxable income, a variable annuity
could help get that down.

--Bill

My son is a home inspector and the company he works for does not offer
any savings options. He and his wife earn about $120k a year. He is
43 years old and has four kids.

Other than an IRA what other tax deferred savings is he eligible for?
How much can he save? I believe for 2006 he can save $4000 in a
traditional IRA. Can he do that now for his 2006 tax return?

Sorry to say he has not saved a penny for retirement despite my
begging over the years. He is busy paying for college for his kids.
I've told him his retirement comes first but he won't listen. Luckily
at the moment he is making enough to have some extra for savings and I
think I can finally talk him into saving for retirement. He's talking
about I Bonds which at his age and tax bracket I don't think is the
way to go.

Any advice would be greatly appreciated.

Jane