mgh234 wrote:
Thanks man, you're way more knowledgeable on taxes than me! For 529 plans, how do I set it up? Can I just deposit my savings into it?
Whats the advantage of moving my 401k into a Roth IRA....is it because I have a lower tax rate now than I'll have when I'm old (If so, should I do it next year when my income is lowest?).
Any resources you have to read would be great. I tried googling some of the stuff you mentioned, but there doesn't seem to be a good over-encompassing site with what I should be doing now and over the next year or two.
[insert disclaimer here] I could be making all of this up. Do your own research!
I used
https://www.brightstartsavings.com/ for my 529 plan. Super easy to setup online. There is another provider called Bright Directions, but I think I would have had to go through a broker to establish an account with them. Yes, I put some savings and cash from other accounts in the plan for a week. I selected the Money Market investment election to ensure the value did not fluctuate. I then transferred in back to checking/savings. Note, this is an Illinois deduction only, not a federal one, so one would have to have Illinois income liability for it to have any effect. More info here:
https://www.savingforcollege.com/529_pla ... plan_id=16Regarding IRA and 401k plans: Most employer 401k plans are fairly limited in terms of the investment options they provide. Since I was no longer employed by the plan sposnor (i.e. my old company), I was able to establish a rollover IRA to provide more options and avoid non-employee account maintenance fees. It was also a good way to consolidate several 401k's that I had from multiple employers. Generally, IRA's are offered by fund companies (Vanguard, Fidelity, etc) and brokerages (Schwab, Etrade, etc). I chose Vanguard because they waive fees for account holders and I like their fund selection. More info:
https://www.marketwatch.com/story/how-to ... 6212047593Roth conversion is a separate animal from the rollover and a bit more complex. Roth IRA money is taxed prior to contribution, whereas 401k or "traditional" IRA money is taxed on withdrawal. Basically, I was in the 25% bracket before school, will be in the 15% bracket during school, and will be up at 33%+ for the rest of my life. Converting means transferring some money out of my rollover IRA to my Roth IRA and paying the (15%) income tax on it now, avoiding the income tax (33%) later. Aside from the savings due to the tax rate difference, it also offers flexibility. When I'm old I could, for instance, withdraw from my 401k up to the 18% tax bracket ceiling and then withdraw whatever else I need for the year from my now tax-free Roth account, avoiding the higher brackets altogether. Or, if a taxes go up for 5 years, I could only withdraw from Roth only, waiting until rates went down to withdraw from my taxable 401k/rollover IRA. Note that I will have to pay taxes in the years I convert, and paying those taxes from my IRA funds significantly erodes the benefit of the move. More info:
https://taxes.about.com/od/retirementtax ... rsions.htmFinally, here's some info on the federal credits and tax deductions. I would guess that 90% of grad students take the LLC.
https://www.irs.gov/publications/p970/