Author Topic: Roth IRA Income Limit question  (Read 3765 times)

peppaz

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Roth IRA Income Limit question
« on: April 11, 2016, 09:42:39 AM »
Hi all, sorry if this has been asked a million times.

I have a Roth IRA but I recently got a new job making $130,000

I understand the contribution limit starts to phase in at $117,000 for 2016.

I believe the Roth contribution limit based on modified AGI but I am unsure how to calculate that.

I max out my 403(b) (on track for ~$18,000 before my employers contribution) so that should keep my income below the threshold, but I don't want to be penalized for over-contributing to my Roth.

If it is relevant, I just moved my old 403b from a previous job (high-fees and bad funds) to a Vanguard Traditional IRA account, if that matters, but I do not contribute to it because I am not eligible (employer offers retirement plan, which I understand is one of the disqualifiers)

Second question, what happens if i miscalculate and over contribute?

Thank you mustachians!

forummm

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Re: Roth IRA Income Limit question
« Reply #1 on: April 11, 2016, 10:15:49 AM »
Maxing your 403b should keep you out of the danger zone. But beware of dividends or capital gains adding back to your total. If you are worried, you can wait until after January 1 to make your contribution for the year. Calculate your income on the tax form and see if you qualify or not. Then make the appropriate contribution before you file your taxes (you have until Tax Day to make contributions for the prior year).

If you over contribute you can back it out by recharacterizing.

pdxbator

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Re: Roth IRA Income Limit question
« Reply #2 on: April 11, 2016, 10:38:02 AM »
Yes wait until after January 1. I made my contribution early in the year last year for 2015. I didn't realize that capital gains and dividends counted. I had to call Vanguard to get them to reverse my contribution, then report the earnings on my taxes PLUS a 10% penalty. Oh joy!

MDM

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Re: Roth IRA Income Limit question
« Reply #3 on: April 11, 2016, 12:03:43 PM »
I believe the Roth contribution limit based on modified AGI but I am unsure how to calculate that.
See https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits and follow the various links to find contribution limits and how to calculate MAGI.

Quote
If it is relevant, I just moved my old 403b from a previous job (high-fees and bad funds) to a Vanguard Traditional IRA account, if that matters, but I do not contribute to it because I am not eligible (employer offers retirement plan, which I understand is one of the disqualifiers)
Doesn't matter now, but if your income goes high enough you might want to do a backdoor Roth in some future year.  The tIRA balance could be a problem then.  See https://www.bogleheads.org/wiki/Backdoor_Roth_IRA.

peppaz

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Re: Roth IRA Income Limit question
« Reply #4 on: April 11, 2016, 12:50:32 PM »
Yes wait until after January 1. I made my contribution early in the year last year for 2015. I didn't realize that capital gains and dividends counted. I had to call Vanguard to get them to reverse my contribution, then report the earnings on my taxes PLUS a 10% penalty. Oh joy!

Thank you and sorry can you explain further? The capital gains and dividends in a taxable account like a brokerage? So you are saying you went below the income limit on your AGI from pre-tax deductions, but then dividends and cap gains in a taxable account bumped you back over the income limit?

That sucks but it makes sense (insofar as how Mod AGI is calculated) if I am following you correctly.

peppaz

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Re: Roth IRA Income Limit question
« Reply #5 on: April 11, 2016, 01:07:32 PM »
I believe the Roth contribution limit based on modified AGI but I am unsure how to calculate that.
See https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits and follow the various links to find contribution limits and how to calculate MAGI.

Quote
If it is relevant, I just moved my old 403b from a previous job (high-fees and bad funds) to a Vanguard Traditional IRA account, if that matters, but I do not contribute to it because I am not eligible (employer offers retirement plan, which I understand is one of the disqualifiers)
Doesn't matter now, but if your income goes high enough you might want to do a backdoor Roth in some future year.  The tIRA balance could be a problem then.  See https://www.bogleheads.org/wiki/Backdoor_Roth_IRA.


Thank you I had not considered the ramifications of this rollover. The balance is about $100k.

If my understanding was correct, and this precludes me from backdoor Roth conversions in the future and I needed them, it seems I can do another rollover into my current 403(b) without penalty or tax implications, is this accurate? Not that I would, just that I could.

MDM

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Re: Roth IRA Income Limit question
« Reply #6 on: April 11, 2016, 01:19:39 PM »
Thank you I had not considered the ramifications of this rollover. The balance is about $100k.
If my understanding was correct, and this precludes me from backdoor Roth conversions in the future and I needed them, it seems I can do another rollover into my current 403(b) without penalty or tax implications, is this accurate? Not that I would, just that I could.
Your understanding is correct - subject to the condition that the 403b plan allows such rollovers.  Many do, but they don't have to.

You also understand correctly the MAGI effect of capital gains, interest, dividends, etc. - anything other than traditional->Roth conversions/rollovers that adds to income on page 1 of form 1040.  See https://www.irs.gov/publications/p590a/ch02.html#en_US_2015_publink1000230988 for specifics.

peppaz

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Re: Roth IRA Income Limit question
« Reply #7 on: April 11, 2016, 01:33:18 PM »
Thank you I had not considered the ramifications of this rollover. The balance is about $100k.
If my understanding was correct, and this precludes me from backdoor Roth conversions in the future and I needed them, it seems I can do another rollover into my current 403(b) without penalty or tax implications, is this accurate? Not that I would, just that I could.
Your understanding is correct - subject to the condition that the 403b plan allows such rollovers.  Many do, but they don't have to.

You also understand correctly the MAGI effect of capital gains, interest, dividends, etc. - anything other than traditional->Roth conversions/rollovers that adds to income on page 1 of form 1040.  See https://www.irs.gov/publications/p590a/ch02.html#en_US_2015_publink1000230988 for specifics.

Thank you very much - quite clear. Appreciate it.