Author Topic: Partial tIRA vs Roth  (Read 538 times)

Cowspot28

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Partial tIRA vs Roth
« on: March 12, 2017, 09:00:26 PM »
Hello,

Sorry for the basic question.

Our MAGI is about 100000 for MFJ with retirement plans. I have already contributed 11000 to t IRAs. Am I correct that it makes sense to recharacterize the non deductible portion into a Roth? How do I know how much this amount is? In the future, is it better to wait to contribute if we know we may be close to the phaseout? Also, I am using H&R Block software. Why do they ask about historical account balances, basis, etc for the IRAs? Does the IRS need this information?

Thank you for your help.


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MDM

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Re: Partial tIRA vs Roth
« Reply #1 on: March 13, 2017, 01:52:34 AM »
Our MAGI is about 100000 for MFJ with retirement plans. I have already contributed 11000 to t IRAs. Am I correct that it makes sense to recharacterize the non deductible portion into a Roth? How do I know how much this amount is?
Is this for 2016 or 2017?

Cowspot28

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Re: Partial tIRA vs Roth
« Reply #2 on: March 13, 2017, 08:24:49 PM »
2016 taxes


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MDM

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Re: Partial tIRA vs Roth
« Reply #3 on: March 13, 2017, 08:46:44 PM »
At MAGI = $98K, you may each deduct $5500.  At MAGI = $118K, you may each deduct $0.

The amount you may deduct changes linearly between those MAGI amounts.

The basis, etc. amounts are relevant if you have any non-deductible tIRA contributions and thus need to file form 8606.

It does make sense to recharacterize exactly the amount that would otherwise be non-deductible.  See IRA recharacterization - Bogleheads.  By doing so you likely eliminate the need to file form 8606.

Cowspot28

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Re: Partial tIRA vs Roth
« Reply #4 on: March 13, 2017, 09:02:35 PM »
Thank you for your help. I will definitely do this.


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financepatriot@gmail.com

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Re: Partial tIRA vs Roth
« Reply #5 on: March 21, 2017, 08:39:39 AM »
Yes, i would recharacterize into a Roth.

What you need to do is make sure you are both maxing out your 401k's and HSA's if you have them.  This will lower your adjusted gross income and hence, increase your deductibility of a tIRA, which will further reduce your taxable income.  Only after you do all this, would I even consider a Roth IRA.

Personally, I think Roth's are a waste of time for an early retiree, and I wrote about our experience on my blog.  We withdrew all of our principal a few years back, and I regret it zero. 
Passionate about FI at www.thefinancepatriot.com

Cowspot28

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Re: Partial tIRA vs Roth
« Reply #6 on: March 21, 2017, 12:54:04 PM »
Thank you for your responses. As a follow up question: Do my husband and I each have to equally recharacterize from tIRA to Roth, or can he recharacterize the entire amount needed into his Roth, and I keep my tIRA contribution at 5500? I ask because we file separate state taxes so it does make a difference, and we would prefer to lower my AGI as legally able. We already fully max both of our TSPs and my DCFSA and do not have access to an HSA.

MDM

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Re: Partial tIRA vs Roth
« Reply #7 on: March 21, 2017, 01:49:00 PM »
Thank you for your responses. As a follow up question: Do my husband and I each have to equally recharacterize from tIRA to Roth, or can he recharacterize the entire amount needed into his Roth, and I keep my tIRA contribution at 5500?
The "I" in IRA stands for "Individual" so not only may you treat each account separately, you must do so.  Thus if the recharacterization can be done for less than one person's contribution, do it however you want.  If you need to recharacterize more than one person's contribution, you can distribute that between the two accounts as you choose.

chops

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Re: Partial tIRA vs Roth
« Reply #8 on: April 03, 2017, 02:18:49 PM »
I have a clarifying question which I believe is related to the OPs original one - I am also only able to deduct a part of my tIRA contribution as I am at $63000 in adjusted gross income for 2016 - so only $3400 of my $5500 contribution can be deducted from my taxes. 

Are the answers here saying that I can recharacterize the balance ($2100) that I couldn't deduct into a rIRA?

Thanks!

Chops

MDM

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Re: Partial tIRA vs Roth
« Reply #9 on: April 03, 2017, 03:08:23 PM »
I have a clarifying question which I believe is related to the OPs original one - I am also only able to deduct a part of my tIRA contribution as I am at $63000 in adjusted gross income for 2016 - so only $3400 of my $5500 contribution can be deducted from my taxes. 

Are the answers here saying that I can recharacterize the balance ($2100) that I couldn't deduct into a rIRA?

Thanks!

Chops
Yes.

Best to do so ASAP, as things can get busy at the brokerages the closer we get to April 18 this year....

See the Bogleheads link if you haven't already for more.