Author Topic: Specific question about Backdoor Roth IRA contribution  (Read 1071 times)

JustGettingStarted1980

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Specific question about Backdoor Roth IRA contribution
« on: October 27, 2016, 08:04:19 AM »
Hello to you wise mustachians!

Got a quick question here.

My wife makes $20000/year, she contributes $18000 directly to a 401K she has access to.
We contribute to Roth IRA's, and since she has worked less this year due to our childcare needs,  she has made less income.

My question is, how much can she contribute to a Backdoor Roth IRA in 2016? Is it  the $2000 difference between W2 income and 401K contribution? Or can we contribute the max of $5500 for her?

It makes sense that it would only be the $2000, but I've been wrong too many times before to trust "common sense".

Thanks,

JGS

robartsd

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Re: Specific question about Backdoor Roth IRA contribution
« Reply #1 on: October 27, 2016, 09:03:25 AM »
Your earned income can be used to contribute to your wife's IRAs - even if she didn't work, you could still fund her IRA from your earnings. I'm not sure how this type of situation would work out for a single person.

MustacheAndaHalf

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Re: Specific question about Backdoor Roth IRA contribution
« Reply #2 on: October 27, 2016, 10:23:10 AM »
It's a bit of a split brain situation.  Each of you wants to contribute $5500/year, and can only contribute individually.  But the IRS treats married couples filing jointly as one taxpayer, so the result is that if together you earned more than $11,000/year, both of you can max out your $5500/year Traditional (or Roth) IRA contribution.

The money does not have to come from paychecks, or even from the person contributing.  A spouse can gift the money.  Actually, even parents or in-laws could gift $5500 and that money could be used to fund an IRA.

robartsd

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Re: Specific question about Backdoor Roth IRA contribution
« Reply #3 on: October 27, 2016, 03:53:07 PM »
Actually, even parents or in-laws could gift $5500 and that money could be used to fund an IRA.
Yes, but you can't contribute more than earned income. I don't know if a hypothetical adult taxpayer who earns just enough to max out his 401(k) and is fully supported by someone else can take a $5,500 in gifts and contribute it to an IRA; you certainly aren't allowed to start a Roth IRA in your child's name and deposit $5,500 a year into it for them if they have no earned income.

bryan

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Re: Specific question about Backdoor Roth IRA contribution
« Reply #4 on: October 27, 2016, 04:47:59 PM »
You didn't quote the part about married couples filing jointly being considered a single earned income..