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Posted by bodude on April 28, 2007, 4:25 pm
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Here's the situation-
will buy house sometime in next 2 years. dual objective :
want to save money for downpayment and also reduce my income
taxes for next 2 years. 401k at work so only spousal ira
contributions possible.
every dollar i invest in 401k/ ira saves me (fed + state
combined) 25+8= 33% in taxes. so, if i don't save, i have
100-33 = 67 in hand.
if i save,
in the spousal ira, it is accessible upto 10,000 usd. but in
the year that i withdraw it, it gets added to income. so i
am left with just 67% ie 6700? so, all i benefit form is
taxfree compounding for the intervening period?
in the 401k, i can get a loan of upto 50% of balance. so, 50
vs 67 if i don't save in 401k. 401k is also advantageous wrt
ira as no tax is due to access the funds in the form of a
401k loan?
now, i don't like the fund choices in 401k. if i rollover
the funds to an ira, fund access for home downpayment will
be as per the ira withdrawal rules and i cannot rollback the
funds to 401k to get a loan?
to serve both objectives, this makes it seem like maxing out
the 401k before putting into the spousal ira is the way to
go?
bodude
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