Author Topic: Married filing Separate/Roth IRA  (Read 2600 times)

clairerebecca

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Married filing Separate/Roth IRA
« on: June 27, 2017, 05:04:47 PM »
Back in January of this year, I opened a Roth IRA with TD Ameritrade (I'm 21 and picked TD Ameritrade because it's what my parents recommended) and started putting $50/month into it. A few weeks later, my fiancÚ and I moved up our wedding date from May 2018 to December 2017. A few weeks after that, I realized that my income (summer internship + school work study) puts me just out of range of contributing to a Roth IRA (I think I'll make about $11,000 in 2017).

Now what? The money is already in there. Is there a way to take it out without paying a penalty? Ideally, I'd like a way to just "start over" with a Fidelity Roth IRA in 2018, once I can contribute to a Roth IRA again, but I realize that might not be possible.

Lady SA

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Re: Married filing Separate/Roth IRA
« Reply #1 on: June 27, 2017, 05:12:15 PM »
Unless you left off a digit in you 2017 income, you definitely can still contribute to a roth.

"Roth IRA Income Limits for Single Filers
If you file as single, head of household or married filing separately (if you did not live with your spouse at any time during the year) your MAGI must be less than $118,000 to contribute up to the limit."

With a work study and internship, I don't think you would be making anywhere close to 100k.

braje

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Re: Married filing Separate/Roth IRA
« Reply #2 on: June 27, 2017, 06:15:21 PM »
Why do you think you will want to file MFS?

clairerebecca

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Re: Married filing Separate/Roth IRA
« Reply #3 on: June 28, 2017, 03:57:32 PM »
I will have lived with my spouse in 2017, though, so my MAGI for Roth purposes has to be at the MFS level, not the Single level (though wouldn't it be great if I had left off a zero?).

We will be MFS because we're getting married at the end of 2017, so "married," but still tax dependents for that year, and if you make over a certain amount (~$18k, I think), you can't file MFJ if someone else is claiming you on their tax return. We debated trying to keep our income under ~$18k, but we both got very good, well-paying summer internships.

dandarc

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Re: Married filing Separate/Roth IRA
« Reply #4 on: June 28, 2017, 04:36:22 PM »
So, you can get a return of excess contribution, if it turns out you need that.  Wait until you prepare your 2017 taxes to be sure your MAGI actually does create a problem for you - if the MAGI comes in lower than you're anticipating, you might be OK here.

https://investor.vanguard.com/ira/excess-contribution?lang=en

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017

MDM

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Re: Married filing Separate/Roth IRA
« Reply #5 on: June 28, 2017, 05:15:03 PM »
We will be MFS because we're getting married at the end of 2017, so "married," but still tax dependents for that year, and if you make over a certain amount (~$18k, I think), you can't file MFJ if someone else is claiming you on their tax return.
What IRS guidance are you using to reach that conclusion?

In 2016 Instruction 1040 - i1040gi.pdf it says
Quote
Married Filing Jointly
You can check the box on line 2 if any of the following apply.
  • You  were  married  at  the  end  of
    2016, even if you didn't live with your
    spouse at the end of 2016.

Lady SA

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Re: Married filing Separate/Roth IRA
« Reply #6 on: June 28, 2017, 09:00:18 PM »
you can't file MFJ if someone else is claiming you on their tax return.

Are you talking about your parents here? If you are married at the end of the year are they still planning on claiming you as a dependent? Because you would be married now and legally not a dependent... I think I'm missing something here.

clairerebecca

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Re: Married filing Separate/Roth IRA
« Reply #7 on: June 29, 2017, 07:35:47 AM »
Yes, they are planning on claiming me - you can be married and be someone else's dependent, which is my situation for TY2017 since I'm getting married on the second to last day of the year.

dandarc

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Re: Married filing Separate/Roth IRA
« Reply #8 on: June 29, 2017, 08:50:25 AM »
We will be MFS because we're getting married at the end of 2017, so "married," but still tax dependents for that year, and if you make over a certain amount (~$18k, I think), you can't file MFJ if someone else is claiming you on their tax return.
What IRS guidance are you using to reach that conclusion?

In 2016 Instruction 1040 - i1040gi.pdf it says
Quote
Married Filing Jointly
You can check the box on line 2 if any of the following apply.
  • You  were  married  at  the  end  of
    2016, even if you didn't live with your
    spouse at the end of 2016.
MDM - the issue is on page 20 of same instructions. 
Quote
Married person. If the person is married and files a joint return,
you can't claim that person as your dependent. However, if
the person is married but doesn't file a joint return or files a
joint return only to claim a refund of withheld income tax or estimated
tax paid, you may be able to claim him or her as a dependent.
(See Pub. 501 for details and examples.) In that case,
go to Step 2, question 3 (for a qualifying child) or Step 4, question
4 (for a qualifying relative).

So the issue is not so much for OP's return, but for the parents return.  I'm guessing that "only to claim a refund of withheld income tax or estimated tax paid" must mean "does not owe income tax", and that's where the ~$18K income figure comes in to play.

OP - here's an idea - have all parents do a draft return with and without you as a dependent.  You do same for Jointly / separately.  See which way works out best.  Due to tax credits, the difference might not be all that wide on the tax bill.  Remember to look at state taxes as well.

Lady SA

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Re: Married filing Separate/Roth IRA
« Reply #9 on: June 29, 2017, 09:03:47 AM »
I'll throw this out there as well, but no worries if it doesn't work for you. Is there a reason you need/want to get married in 2017? Would it be possible to bump it a week into 2018 and avoid this tax weirdness? Of course, I don't know you and have no idea if the date is significant to you and your fiance in some way, or if things are already set in stone and cannot be moved (you are 6ish months out), or if you are even open to the possibility of moving the date. From your OP it sounded like you were planning on getting married next year anyway but moved it recently.

Now, to be fair, going through the angst of moving things around is likely not worth it for the $5500 in your IRA, but figured I'd throw the option out there anyway.

MDM

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Re: Married filing Separate/Roth IRA
« Reply #10 on: June 29, 2017, 10:52:32 AM »
So the issue is not so much for OP's return, but for the parents return.  I'm guessing that "only to claim a refund of withheld income tax or estimated tax paid" must mean "does not owe income tax", and that's where the ~$18K income figure comes in to play.

OP - here's an idea - have all parents do a draft return with and without you as a dependent.  You do same for Jointly / separately.  See which way works out best.  Due to tax credits, the difference might not be all that wide on the tax bill.  Remember to look at state taxes as well.
This could well be the case.  The question to the OP was to clarify whether the selection of MFS was by choice or by perceived requirement.  If all income is ordinary income, the standard deduction for MFJ and two personal exemptions will offset an AGI of up to $20,800 and result in $0 tax due.

If the saver's credit is available (e.g., if both of the newlyweds are not full time students for 2017), then the ordinary income resulting in $0 tax due gets much higher.  If together they put $11K into tIRAs, their gross income could be $48,000 and still have $0 tax due.

+1 to the idea of running the numbers different ways - if the three families are willing to accept "lowest total tax paid" regardless of the effect on the individual families ;) - as the best way to decide.

clairerebecca

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Re: Married filing Separate/Roth IRA
« Reply #11 on: July 05, 2017, 08:56:47 PM »
Now, to be fair, going through the angst of moving things around is likely not worth it for the $5500 in your IRA, but figured I'd throw the option out there anyway.
We definitely considered it :) And ultimately decided that even the prospect of a 6% ongoing tax on the $112 or so I contributed before I found out about the restriction was not worth the headache of moving things again. We had a hard enough time settling on a date the first two times!

To clarify, I'm choosing to file MFS because messing up my parents' tax return seems a poor payback for 3.5 years of college education and a wedding. I had heard of the savers credit, and had initially thought to reduce my AGI to <$10,000 by contributing to a Roth IRA, but didn't realize I'd be disqualified because I'll be a full-time student in 2017, so thanks for pointing that out!

Somewhat off-topic, but these different student and age related rules really seem make life more difficult for working students and young families. I have it relatively easy, all things considered, because I only work 20 hours/week during the school year, but I know other people who work a lot more and go to school full time.

MDM

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Re: Married filing Separate/Roth IRA
« Reply #12 on: July 05, 2017, 09:18:27 PM »
I had heard of the savers credit, and had initially thought to reduce my AGI to <$10,000 by contributing to a Roth IRA, but didn't realize I'd be disqualified because I'll be a full-time student in 2017, so thanks for pointing that out!
Somewhat academic regarding the saver's credit due to your full-time student status, but a Roth IRA contribution will not change your AGI at all.