Roth IRA vs. Traditional IRA w/tax refund ch 7

[nichole04]

My husband and I have about $15,000 in the bank and most of it is from our 2009 tax refund. We just closed our small business so the deductions we had for the business helped us get this large refund. We are filing ch. 7 in April and are above the median income but passed the means test. Should we put all of this money into a Roth IRA or traditional IRA before filing? Since we haven't ever contributed to IRA's we can each contribute up to $5000 for this year and for 2009. We would like to be able to take some of it out after we have filed bk but didn't know which IRA would be kinder as far as penalties go. Our lawyer says we can put the money in the IRA and is even telling us he can protect up to $10,000 cash in the bank with our homestead exemption since we have no equity in the house but I am afraid to just leave that cash sitting there for the taking. We can spend some of it on necessites but still need to do something with the rest. Also, would leaving $10,000 in cash in the bank make us become an asset case? We live in Georgia. Any advice would be greatly appreciated!

[BCA2009]

You have until April 15, 2010 to make a contribution to an IRA for 2009. But if you have already filed your 2009 tax return you will have to amend it in order to claim a 2009 Tradional IRA. Off the top of my head I can't remember how Roth IRA's are disclosed in the Returns, but you would probably have to amend to contribute a Roth also.

If you have enough exemptions to cover your cash in the bank, you are not an asset case. Assets are equity in excess of exemptions

[nichole04]

Thanks for the info. BCA2009! Do I have to claim the IRA on my taxes for 2009? Does this help you or hurt you with how much money you receive back?

[LSUTiger32]

I am not sure about this but I believe that any contributions to a retirement plan up to within 12 months of filing are fair game to the TT. Again, that what I was told in LA.

Also, I believe that if you have $10,000 in the bank and the TT knows of it he will make you an asset case in a second. He made us an asset case just for our $5,000 tax refund.

[OhioFiler]

I am not sure about this but I believe that any contributions to a retirement plan up to within 12 months of filing are fair game to the TT. Again, that what I was told in LA.

Your team will bear the brunt of an unhappy with their 3 game losing streak team tonight. Set your VCR!

[BCA2009]

Thanks for the info. BCA2009! Do I have to claim the IRA on my taxes for 2009? Does this help you or hurt you with how much money you receive back?

A contribution to a traditional IRA is tax deductible, so it should increase your refund assuming if you have any remaining taxable income. If you have already been refunded everything you paid in it won't make a difference. But you still need to complete the correct forms on your return to indicate that you made a contribution.

FYI - If you have a qualified retirement plan at your work (401k), you normally are not eligible for a traditional IRA, whether you participated in the 401K or not. You can still do the Roth even if you also have a 401K .

[BCA2009]

I am not sure about this but I believe that any contributions to a retirement plan up to within 12 months of filing are fair game to the TT. Again, that what I was told in LA.

Also, I believe that if you have $10,000 in the bank and the TT knows of it he will make you an asset case in a second. He made us an asset case just for our $5,000 tax refund.

This is totally dependant on the exemptions in your state. If you have the exemptions to cover the cash, it will not make you an asset case.

[nichole04]

Thanks so much to everyone for their advice!

[nichole04]

So for tax purposes, is it better to do a traditional IRA or a Roth IRA if I withdraw the funds early?