Author Topic: Roth IRA eligibility requirements  (Read 4557 times)

payitoff

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Roth IRA eligibility requirements
« on: January 29, 2014, 09:48:37 PM »
i just reviewed the requirements and im afraid were almost going to hit the max income required for married filing jointly ($181K). i just got an increase and now at $60k/yr. Husband earns $40/hr and have overtime hours on top of that (works 2 jobs). is it still safe to continue funding it or not?

the fixer

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Re: Roth IRA eligibility requirements
« Reply #1 on: January 29, 2014, 09:57:30 PM »
I'm in a similar situation where our income comes dangerously close to the limit. I would just hold off on contributing this year until you know for sure whether or not your income stays under the limit.

Out of curiosity, though, I can't make your math work. Your husband would have to work 40 hours per week for 50 weeks at $40/hour, plus average 15 hours per week of overtime at $50/hour, to even come close. And this is before considering any tax deductions like 401(k)s. Is that not how it works?

payitoff

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Re: Roth IRA eligibility requirements
« Reply #2 on: January 29, 2014, 10:02:49 PM »
i might have over calculated, but just being on a safe side, coz he is a physical therapist that have 4 per diem jobs, sometimes he works 60 hours in a week, the 2 jobs he is more frequent which he works  8 hours at one, and 4 hours on the other, and that's everyday. the other 2 he picks  it up on the weekends.

also since he's per diem status, he doesnt have benefits like vacation pay, 401k, in exchange for higher rate of pay
« Last Edit: January 29, 2014, 10:04:56 PM by twinsmom »

the fixer

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Re: Roth IRA eligibility requirements
« Reply #3 on: January 29, 2014, 10:16:21 PM »
Do you have a 401(k) or other retirement plan from your employer? If not, you're both at least eligible for traditional IRA contributions. You'll need to double-check this part, but you might be able to make part of your contribution go to a traditional IRA, thereby lowering your AGI just enough to be eligible for a Roth contribution with the rest. I'm not positive of this because it depends on how MAGI is defined for the Roth limit, and I don't have that off-hand. If it's the case, though, it gives you some flexibility.

dragoncar

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Re: Roth IRA eligibility requirements
« Reply #4 on: January 29, 2014, 10:40:53 PM »
Google back door roth

livetogive

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Re: Roth IRA eligibility requirements
« Reply #5 on: January 29, 2014, 10:46:52 PM »
I personally don't think the back door roth is worth it for most people.  Since its 2014, are you talking about this tax year or 2013?

If 2014, I wouldn't risk it and just fund a traditional.  I have a ROTH and have had it since I was 22.  I've since gotten a graduate degree in finance and now seriously question whether it was worth it vs. a traditional.  It might end up being a great move, it also might end up costing me tens of thousands in missed income or more.

My point is I don't think a ROTH is the OMG ITS AMAZING investment deal people make it out to be, and it's CERTAINLY not worth any type of tax penalty or the requirement of using an expensive CPA when you could do your taxes yourself.  So i say stop contributing, and if this is for 2014 you might want to read this:
http://www.kiplinger.com/article/retirement/T046-C001-S001-exceeding-the-roth-income-limit.html

dragoncar

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Re: Roth IRA eligibility requirements
« Reply #6 on: January 30, 2014, 12:26:12 AM »
I personally don't think the back door roth is worth it for most people.  Since its 2014, are you talking about this tax year or 2013?

If 2014, I wouldn't risk it and just fund a traditional.  I have a ROTH and have had it since I was 22.  I've since gotten a graduate degree in finance and now seriously question whether it was worth it vs. a traditional.  It might end up being a great move, it also might end up costing me tens of thousands in missed income or more.

My point is I don't think a ROTH is the OMG ITS AMAZING investment deal people make it out to be, and it's CERTAINLY not worth any type of tax penalty or the requirement of using an expensive CPA when you could do your taxes yourself.  So i say stop contributing, and if this is for 2014 you might want to read this:
http://www.kiplinger.com/article/retirement/T046-C001-S001-exceeding-the-roth-income-limit.html

Roth is a no brainer if you are already past the deductible Ira limit (I'm guessing OP is) and have maxed out 401ks.  You are already paying taxes on that $5500 so why not eliminate taxes on all gains?  Plus you can withdraw the contribution after 5 years ( yeah these rules can be tricky but the small loss of liquidity is a small price to pay)

wtjbatman

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Re: Roth IRA eligibility requirements
« Reply #7 on: January 30, 2014, 01:13:43 AM »
If 2014, I wouldn't risk it and just fund a traditional.  I have a ROTH and have had it since I was 22.  I've since gotten a graduate degree in finance and now seriously question whether it was worth it vs. a traditional.  It might end up being a great move, it also might end up costing me tens of thousands in missed income or more.

I question your graduate degree when you believe having a Roth IRA is somehow going to cost you tens of thousands in missed income.

Ok scratch that. Obviously you will have less "income" with a Roth since funding a traditional IRA it reduces your taxable income, and the tax man isn't going to take as much, therefore you are going to have more income to play around with. But that money you put into a Roth should be gaining value from being invested, and unlike a tIRA or 401k, its value won't be reduced through taxation when you start withdrawing the money.

secondcor521

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Re: Roth IRA eligibility requirements
« Reply #8 on: January 30, 2014, 09:37:54 PM »
i just reviewed the requirements and im afraid were almost going to hit the max income required for married filing jointly ($181K). i just got an increase and now at $60k/yr. Husband earns $40/hr and have overtime hours on top of that (works 2 jobs). is it still safe to continue funding it or not?

It is.

First, it is not your gross income that determines eligibility, it is your MAGI (which is basically your AGI), which is reduced by any 401k contributions, as well as any other pre-tax deductions like a FSA or health insurance expenses.

Second, if you find that you have overcontributed in any given year to your Roth, you can (a) recharacterize the excess contribution plus any associated earnings to a traditional (but probably non-deductible at your income level) IRA, (b) move the excess to be a contribution for the following tax year (2015 in this case if I'm reading your post correctly), or (c) withdraw the excess and pay taxes plus a 10% penalty on any associated earnings.  In the case of (c), you won't pay taxes on the excess contribution amount, just the associated earnings if there are any -- and your IRA custodian will calculate the amount for you automagically.

Chiron

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Re: Roth IRA eligibility requirements
« Reply #9 on: January 30, 2014, 10:03:12 PM »
I personally don't think the back door roth is worth it for most people.  Since its 2014, are you talking about this tax year or 2013?

If 2014, I wouldn't risk it and just fund a traditional.  I have a ROTH and have had it since I was 22.  I've since gotten a graduate degree in finance and now seriously question whether it was worth it vs. a traditional.  It might end up being a great move, it also might end up costing me tens of thousands in missed income or more.

My point is I don't think a ROTH is the OMG ITS AMAZING investment deal people make it out to be, and it's CERTAINLY not worth any type of tax penalty or the requirement of using an expensive CPA when you could do your taxes yourself.  So i say stop contributing, and if this is for 2014 you might want to read this:
http://www.kiplinger.com/article/retirement/T046-C001-S001-exceeding-the-roth-income-limit.html

That article was written in 2008.  Since then the backdoor Roth has been discovered possible, and it absolutely is worth it for anyone over the deductibility limit for a traditional IRA.  Although I agree the Roth is overvalued v. the traditional if you can take the deduction on the traditional contributions, that isn't the case here.

Cheddar Stacker

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Re: Roth IRA eligibility requirements
« Reply #10 on: January 30, 2014, 11:14:25 PM »
My point is I don't think a ROTH is the OMG ITS AMAZING investment deal people make it out to be, and it's CERTAINLY not worth any type of tax penalty or the requirement of using an expensive CPA when you could do your taxes yourself.  So i say stop contributing, and if this is for 2014 you might want to read this:
http://www.kiplinger.com/article/retirement/T046-C001-S001-exceeding-the-roth-income-limit.html

I don't understand why:
1) this would generate a tax penalty
2) would require the use of a CPA, let alone an expensive one

Many, many people do this every year. There are substantial benefits. Once you understand the rules it's very simple. A Roth IRA contribution has absolutely no impact on your tax return, so it won't generate a penalty or make your tax return any more complicated.

I'm confused by your logic. Please elaborate.