Author Topic: Figuring out how to avoid phase out for Roth IRA eligibility  (Read 526 times)

Nick_Miller

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So the phase out for Roth IRA eligibility starts at $189,000 AGI for married couples filing jointly and ends at $199,000. For the first time in our married lives, my wife and I are projecting getting dangerously close to $189,000+ AGI. Yes, I can file this under "nice problems" to have, but it's still new for us. I have earned more bonuses at work than I normally do, and a side project (book) is doing better than I expected, so those are the reasons for the surprise.

I am on pace to earn about $120,000 at my law job (this includes projecting some bonuses)
She is on pace to earn about $55,000 at her job
So that's projected $175,000 income.

My new book has done well thus far, and I am projecting net income of around $15,000, but it could go potentially go to $20,000 if sales stay strong the rest of the year.

So total projected income of between $190,000 to $195,000

To get AGI, you just subtract a few deductions. Student loan interest is probably the only one there, so let's say $2,000.00 for that. So we're down to $188,000 to $193,000 for projected AGI. Again, in the danger zone.

Any suggestions?

1) How hard is it to "undo" a Roth IRA?
2) Would anyone suggest trying to defer a few bonuses at my work so that they are "earned" in 2019?
3) I could always buy a few more things for my writing business to get my net income down a bit, but I don't want to waste money just to lower AGI.
4) Any other thoughts?


sokoloff

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #1 on: July 12, 2018, 10:03:17 AM »
Google "backdoor Roth".

https://www.thebalance.com/using-non-deductible-iras-to-get-money-into-a-roth-ira-2388699

If you have no other (traditional) IRAs (401K is OK), this is fairly easy.

kpd905

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #2 on: July 12, 2018, 10:14:55 AM »
If you max out two 401ks you will be well under the phase out.  If you don't have access to a 401k at work, you could open a solo 401k and defer all of your book money with it through both the employee and employer contributions.
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Nick_Miller

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #3 on: July 12, 2018, 10:20:37 AM »
If you max out two 401ks you will be well under the phase out.  If you don't have access to a 401k at work, you could open a solo 401k and defer all of your book money with it through both the employee and employer contributions.

Well I had reduced my wife's income number to reflect her anticipated contributions, but yeah duh...I should just ask her to ramp them up if we're going to be close on the phase out.

We just started a 401k at work but it's not clear yet if I'll be classified as a HEC, so I'm not anticipating necessarily being able to put a lot into mine...I should have that answer soon though.

kpd905

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #4 on: July 12, 2018, 10:24:12 AM »
If they limit you at work, I think you could put in the remainder of the $18,500 limit into a solo 401k with the book money, plus a ~$4k employer contribution.
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Nick_Miller

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #5 on: July 12, 2018, 10:28:47 AM »
If they limit you at work, I think you could put in the remainder of the $18,500 limit into a solo 401k with the book money, plus a ~$4k employer contribution.

I was hoping to avoid the hassle of setting up a solo 401k and letting my work do the "hassle" part of it, but yeah if I am a HEC under our plan, that might be the next best step. I didn't quite make $120,000 last year from the law job, but I'm worried that our plan might have "top 20%" of employees language, in which case I would automatically become a HEC, because we only have 5 employees and I'm the highest paid by far.

terran

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #6 on: July 12, 2018, 10:35:00 AM »
If they limit you at work, I think you could put in the remainder of the $18,500 limit into a solo 401k with the book money, plus a ~$4k employer contribution.

Agreed on this one.

If you pick the right custodian (Fidelity, TD Ameritrade, and etrade, but not vanguard off the top of my head) you can also roll in any traditional IRA balance you might have which would clear the way for you to do backdoor Roth without paying to convert current balances.

jlcnuke

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #7 on: July 13, 2018, 05:00:18 AM »
Google "backdoor Roth".

https://www.thebalance.com/using-non-deductible-iras-to-get-money-into-a-roth-ira-2388699

If you have no other (traditional) IRAs (401K is OK), this is fairly easy.

This is the obvious solution if you qualify. Just do the backdoor Roth.
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Nick_Miller

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Re: Figuring out how to avoid phase out for Roth IRA eligibility
« Reply #8 on: July 13, 2018, 09:39:10 AM »
I will look into back door roth as I just found out my wife is capped at 18.5% contributions to her 401k and she was already at 15%. She's bumping it up next week but it won't make much difference.
« Last Edit: July 13, 2018, 09:40:57 AM by Nick_Miller »