Better to do traditional IRA for partial deduction or Roth IRA?

[engineermom21]

So I'm running the numbers for this year to try and figure out whether to do a traditional IRA or roth IRA for 2017.  If I receive my full bonus at work, which I should, and am expecting a large chunk of overtime pay on top of that, our AGI for the year would fall around $110,000 (married filing jointly, with one parent working - me - and the other at home). 

Probably a newbie question, but does the amount I contribute to a traditional IRA count towards my AGI to determine if I would receive the full or partial deduction? 

I could also look into doing a spousal IRA if that would help get us below the threshold for the full deduction...

But worst case scenario is we are in the partial deduction territory, which brings me back to my original question of whether doing the partial deduction would make more sense, or going the Roth IRA route?

[MDM]

So I'm running the numbers for this year to try and figure out whether to do a traditional IRA or roth IRA for 2017.  If I receive my full bonus at work, which I should, and am expecting a large chunk of overtime pay on top of that, our AGI for the year would fall around $110,000 (married filing jointly, with one parent working - me - and the other at home). 

Probably a newbie question, but does the amount I contribute to a traditional IRA count towards my AGI to determine if I would receive the full or partial deduction?

You don't get to subtract the IRA contribution.  See https://www.irs.gov/publications/p590a/ch01.html#en_US_2016_publink100025076.

But worst case scenario is we are in the partial deduction territory, which brings me back to my original question of whether doing the partial deduction would make more sense, or going the Roth IRA route?

If your marginal rate is at least 25%, traditional contributions will usually be better.  Contribute the full $11K this year, then do an IRA recharacterization before filing taxes (or wait until filing season to make this year's contributions) to get the exact amount allowed for deduction into a tIRA and the rest in Roth.

Note that 401k/403b/etc. contributions do reduce MAGI, so if you aren't maximizing those....

[engineermom21]

You don't get to subtract the IRA contribution.  See https://www.irs.gov/publications/p590a/ch01.html#en_US_2016_publink100025076.

Darn it.  I didn't think so, but wanted to double check.

If your marginal rate is at least 25%, traditional contributions will usually be better.  Contribute the full $11K this year, then do an IRA recharacterization before filing taxes (or wait until filing season to make this year's contributions) to get the exact amount allowed for deduction into a tIRA and the rest in Roth.

Note that 401k/403b/etc. contributions do reduce MAGI, so if you aren't maximizing those....

Yup, should have mentioned that this would be after 401K was maxed out.  I was going to wait until the end of the year to make the contribution, but I hate to miss out on gains for the next 6 months and then have that negate any tax benefits.

[seattlecyclone]

Yeah, you don't need to do one of the other. You can fill the traditional up to your limit and then put the rest of your $5,500 in Roth. If you want to make sure you money is in the market longer, you have a few choices:

1) Contribute to a taxable account and then move the money to an IRA once you have a better idea what your MAGI will be. Some short-term capital gains could result from this strategy.
2) Overestimate your income by a bit, contribute to your traditional and Roth based on that assumption, and leave a small amount of tax savings on the table since you're contributing a little bit less to traditional than you could.
3) Underestimate your income by a bit, contribute to your traditional and Roth based on that assumption, and recharacterize part of the traditional contribution once you know what your MAGI actually is. This can be a bit of a paperwork hassle but you get the full benefit of time in market and you get to maximize your deductible contribution.
4) Front-load your 401(k) contributions more so that you'll get around to IRA investing toward the end of the year anyway, so the amount of time between getting the money and knowing your income will be minimal.

Even though a spousal IRA will not change your MAGI, contributing to one can be a good idea anyway if you have the funds to contribute.