Author Topic: Can I open a ROTH IRA? (Hubby in between jobs and now meet the threshold)  (Read 1516 times)

LiseE

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Hi ...

My hubby has been between jobs for a year now.  He had a brief contract job for three months last year but this year he's still looking for work.  So, right now, with hubby not working we qualify to contribute to a Roth.  Should he get a job next month, our combined salary will once again put us over the limit. 

Can I open a ROTH IRA now and fully fund it for the year while he's not working?  Should he get a job, then we can no longer contribute?  Is that how it works?

- Lise

MustacheAndaHalf

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It's determined by salary for the entire tax year.  So if you two make a combined joint income above the threshold during 2017, you would need to reverse the contributions.
https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017

LiseE

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Still not sure what do to ... but being that the year is half over, even if hubby lands a job I don't think we will reach the MAGI limit.  To be sure, should I wait until the end of the summer to open a ROTH?

We are nearing our FI date but all of our money is currently tied up in 401Ks.  I know there are ways to access those funds before retirement (I've read all the forums on this topic) but we still need to bulk up our available funds for living.

We have cash to live off of for the next five years while we build a conversion ladder ... we will be 55 when that is fully funded.

Just trying to figure out if it would still be a good thing to open a ROTH.

Rubic

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You have until April 15th of 2018 to open and make a 2017 contribution to a
Roth IRA, so you can wait until you actually calculate your MAGI with a high
degree of certainty.  A few months won't really matter in the Big Picture.


dandarc

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We are nearing our FI date but all of our money is currently tied up in 401Ks.
Is this 100% true?  No traditional IRAs or SEP or SIMPLE IRAs out there?  You and husband did not roll-out your money to IRAs in the past?

Then fund an IRA.  There is no reason not to.

If you wind up over on income - recharacterize to traditional (don't take a deduction, since if you're asking this you probably can't), then convert to Roth.  This is called a backdoor Roth IRA.

If you wind up under on income, then you're good.

You don't have to guess right on these things - the IRS lets you recharacterize (switch from Roth to Traditional or vice-versa) or withdraw excess contributions up to your tax-filing deadline without penalty.


A couple of other points -
These are Individual accounts.  If your husband continues to not have access to an employer-sponsored plan for the rest of this year, you could make a deductible traditional IRA contribution for him.  That may or may not be preferable to a Roth IRA.  Limits in this scenario are here:  https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

Roth IRA contributions (not conversions) can be withdrawn at any time.  Getting going with regular contributions could give you some wiggle-room on the ladder.

If you retire at 55, and your 401K allows it, you can make penalty-free withdrawals from the 401K.

If I'm reading correctly, you'll be about 50 years old when you pull the plug?  SEPP also could be a viable option there - only about 10 years to cover, so having to take the same withdrawal every year isn't as big of a deal for you as someone retiring at 40 or 30.

Basically, there are a ton of ways to fund your retirement with what you have.  So don't worry!