For the past few years, I've happily contributed to a 401k and a Roth IRA, enjoying the idea of tax diversification. However, I will end 2013 with less income than in past years. It has triggered another look at what is optimal, and I am realizing I may be eligible for a deduction with a Traditional IRA. Note that despite the decreased income, I still expect my tax bracket to be lower during ER than it is today.
According to
this IRS page, one can take a full deduction on Traditional IRA contributions - further decreasing one's taxes - IF one's Modified Adjusted Gross Income is $59k or less (for 2013).
The part I have trouble with is calculating this MAGI. The explanations and calculators out there are very confusing, but I think I'm getting the gist of it. However, if someone can tell me whether my simplified look is getting me somewhere, it would settle my nerves:
Let's say a person with a salary of $70k (and no other source of income) maxes out their 401k with $17.5k. While there is a host of things that could affect the final MAGI, the most that person's MAGI could be is $52.5k, right?
If this is true, I may need to talk with Vanguard about recharacterizing. Not sure how problematic this will be. The 2013 contribution amount is obvious, but the 2013 dividends are all lumped together with dividends from other years' contributions.
Has anyone recharacterized, and was it smooth/worth it?
Oh, asking for a friend...