MFS - IRA Options? Help!

[DarkandStormy]

Hello mustachians!  I've been active on the forums here for a few months (and was a lurker before that) but now the time has come for my first topic.

Here is the situation - I am engaged to my lovely fiance but due to student loans we are in a tricky situation over the next ~8 years.  We *could* wait 8 years to get married but that seems like the least ideal situation.  We are targeting 2019 (or perhaps 2020) to get married, but that's not the tricky part.

I do not have any student loans and make, call it $75k with a private company.  I take full advantage of the 401(k) and HSA offered.  I also contribute the maximum amount to a Roth IRA (have been considering switching to tIRA but that's a different story).

Fiance makes, call it $50k in a government position.  She takes advantage of the 403(b) plan for retirement as well as Roth IRA.  Unfortunately, she's looking at quite a bit in student loans.  She's actually on an IBR payment now as she's going through PSLF - public service loan forgiveness.  She needs 10 years of service and has two under her belt so far.  In addition, her university (graduate degree) kicks in some financial help on the monthly payments if she makes under $55k in AGI.

So here is the kicker - in order to keep her IBR payments low (or even be eligible for IBR) we will have to file separately once we are married.  What we are now realizing doing some research is that MFS has a lot of limitations.  One of our main concerns is finding a way to contribute to an IRA.  We both live (and will live) with each other after marriage and we will both have AGIs above $10,000.  From our understanding, we are not only excluded from making Roth contributions we also are excluded from making Traditional IRA contributions (which also takes a backdoor Roth off the table).

This is a pretty unique situation because of the student loans (balance is above six figures).  So while she's on the path to get those wiped out with minimal payments over the next 8 years, could marrying actually cost us an entire retirement vehicle?  Say it ain't so!  Hopefully someone out there knows of a way around this.  Thanks!

[terran]

Pretty sure you can always contribute to a traditional IRA, it's the deduction that is in question, which would leave the backdoor roth available to you. This would seem to agree: https://www.bogleheads.org/forum/viewtopic.php?t=171301

[DarkandStormy]

Thanks for the find, Terran!

I think she'd be in the clear as the entirety of her IRA is Roth.

I have a tIRA that was a 401(k) rolled over from a previous employer - roughly $15.5K in value right now.  So I'd be looking at paying tax on ~75% of the conversion if I converted the $5.5 non-deductible portion?

Is it worth converting the tIRA now / the next two years to avoid the mess of calculating the taxable amount of the non-deductible conversion?

EDIT - or maybe I should roll my tIRA into my current employer's 401(k) plan, leaving me open to convert the non-deductible IRA to a Roth completely without triggered a taxable event.

[terran]

EDIT - or maybe I should roll my tIRA into my current employer's 401(k) plan, leaving me open to convert the non-deductible IRA to a Roth completely without triggered a taxable event.

If your employer plan allows this (not all do) that's definitely the way to go.

[Fire2025]

I'm a little confused, how are you hitting the limit? 

The limit is 118,000. 

Your combined income gross is only 125,000. 

Once you each contribute 18,000 to 401k/403bs your at 89,000 and can contribute away.  Then you say you do other things also like HSA.

How are you not getting under the limit of 118,000/year to contribute to a Roth or tIRA?

Sorry if I'm missing something important.

[terran]

I'm a little confused, how are you hitting the limit? 

DarkandStormy wants to file MFS for student loan purposes.

See the Married Filing Separately section of https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017

[Fire2025]

I'm a little confused, how are you hitting the limit? 

DarkandStormy wants to file MFS for student loan purposes.

See the Married Filing Separately section of https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017

Thank you so much.  Wow that is a crazy threshold.  Do you need to get married?  I've been with my SO for 20 years without marriage and we're super happy together.  8 years isn't that long in the course of a lifetime. 

[DarkandStormy]

I'm a little confused, how are you hitting the limit? 

DarkandStormy wants to file MFS for student loan purposes.

See the Married Filing Separately section of https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017

Thank you so much.  Wow that is a crazy threshold.  Do you need to get married?  I've been with my SO for 20 years without marriage and we're super happy together.  8 years isn't that long in the course of a lifetime.

We have certainly discussed waiting longer.  We already have a co-habitation agreement notarized so some legalities are covered that way.  We also discussed a non-wedding "wedding" ceremony (i.e. just don't get married legally) but that's pretty much off the table.

Conservatively, getting married in 2019 will cost her/us ~$8,000 in loan reimbursements (perhaps more, we went conservative with future raises).  That is to say nothing of the tax consequences of MFS v. MFJ.  So we are now considering a compromise to 2020 perhaps.

Thanks for all the help everyone!  Sounds like my best option will be to move my tIRA to my current 401(k) plan (they do allow a rollover into the plan - I get hit with a 0.25% "expense fee" but I put everything into VTSAX, so I pay 0.29% effective expense ratio for VTSAX) and then each of us can do the backdoor Roth via nondeductible IRA conversion to Roth.