Author Topic: Already contributed to my Roth, but now might not qualify  (Read 903 times)

Mustachio Bashio

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Already contributed to my Roth, but now might not qualify
« on: June 13, 2018, 04:25:06 PM »
Hey there, I just got a job offer that I believe will put me over the amount you're allowed to make before not qualifying to contribute to the Roth, but I've already contributed for the year.  Can anyone explain to me what that number is exactly?  Does adjusted gross income mean after pretax contributions?  I plan on maxing out my 401k and the new job has matching as well, so does that mean after those deductions have been made from my gross?  And then it says it's reduced from $120,000 to $134,999.  What is it reduced to?  If I need to remove those contributions, how does that work since they've already made a little bit of profit?  I had just opened a new Roth in Vanguard to stop contributing to the one I have in Betterment that I need to transfer over (but the paperwork is kinda a pain so I've been lazy), so it's just this year's contribution plus the $200 that it's made so far.

Thanks in advance for any help or resources!

terran

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Re: Already contributed to my Roth, but now might not qualify
« Reply #1 on: June 13, 2018, 05:49:21 PM »
Here are the limits for Roth IRA contributions: $120k if you're single.

Here is the definition of MAGI for IRA purposes. Chances are if your W2 is under the limit (so gross income less things like 401k), then you should be good.

Here is info from Vanguard on removing excess contributions. I don't know, but I suspect you'll pay tax on the gains at your marginal rate.

Do you have any existing traditional IRA balances? If not, you could consider recharacterizing the Roth contribution as traditional instead of withdrawing it and then performing a backdoor Roth.

talltexan

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Re: Already contributed to my Roth, but now might not qualify
« Reply #2 on: June 14, 2018, 11:38:46 AM »
I had this come up for TY2017. Fixing it was as easy as faxing one form to American Funds (yes, they are sub-optimal for other things) to change all my contributions to TY 2018. If it's still a problem a year from now, I'll fax another form and move them forward one year (paying taxes on the gains).

MDM

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Re: Already contributed to my Roth, but now might not qualify
« Reply #3 on: June 14, 2018, 11:59:30 AM »
I had this come up for TY2017. Fixing it was as easy as faxing one form to American Funds (yes, they are sub-optimal for other things) to change all my contributions to TY 2018. If it's still a problem a year from now, I'll fax another form and move them forward one year (paying taxes on the gains).
Just checking: why do that instead of a backdoor Roth?


talltexan

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Re: Already contributed to my Roth, but now might not qualify
« Reply #4 on: June 25, 2018, 02:57:30 PM »
This is an excellent question, and my answer will probably not be satisfying.

My wife actually did do a backdoor Roth in place of the process I describe. I was fairly confident that our income would fall back below the threshold, and I would rather put my own money into a pre-tax 401(k) anyway (in accordance with the investment order), so I thought  I could handle this one year this way. It is possible I will be eating crow this coming January.

One other difference was that I have an extra IRA holding substantial investments from a previous job, which my wife didn't have.

MDM

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Re: Already contributed to my Roth, but now might not qualify
« Reply #5 on: June 25, 2018, 04:19:06 PM »
One other difference was that I have an extra IRA holding substantial investments from a previous job, which my wife didn't have.
That is indeed a significant difference.

Can you roll the pre-tax amounts from your IRA to your 401k?

Mustachio Bashio

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Re: Already contributed to my Roth, but now might not qualify
« Reply #6 on: June 26, 2018, 05:17:00 PM »
Thanks for the responses!  I'm hoping ultimately my accumulated income will be lower than the threshold, but i'll check closer to the deadline I guess and if that's not the case, do one of your suggestions.

ChpBstrd

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Re: Already contributed to my Roth, but now might not qualify
« Reply #7 on: June 27, 2018, 08:46:17 PM »
I had to fill out a form with TDA to recharacterize some of my 2017 traditional IRA contribution into a Roth. I did this in March 2018. Note that TDA does NOT apparently send a corrected tax form to the IRS in this scenario, so what I reported does not match their tax forms. I feel like I'm at high risk for an audit now.

Unfortunately, by the time I realized DW and I were into the income phase-out I had already contributed the max to both our traditional IRAs for 2018. DOH! Next year it sits in a taxable account till I can accurately estimate income in late December.

reeshau

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Re: Already contributed to my Roth, but now might not qualify
« Reply #8 on: June 28, 2018, 05:59:52 AM »
Next year it sits in a taxable account till I can accurately estimate income in late December.

You don't have to estimate.  You have until April 15 of the following year to contribute--you can do it in January, based on facts.  Or April 1, based on your actual tax return.

Car Jack

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Re: Already contributed to my Roth, but now might not qualify
« Reply #9 on: June 28, 2018, 12:54:01 PM »
I was caught by this last year.  We tend to fill Roths the first week of the year (for the present year) and unexpectedly, my company did exceptionally well.  I have a bunch of bonuses linked to how the business does that were sort of ho hum the year before but last year, it pushed me into the phase out zone, so I had to pull some of our Roth money out with the help of both Fidelity and Schwab (me and my wife's accounts).  This year, to avoid that, I'll hold out until my tax filing is ready to go before putting a dime into Roth.