Additionally, not that is particularly important now, but you might actually be able to contribute without the Backdoor maneuver. Any money contributed to your 401(k) is not included in your Modified Adjusted Gross Income, which is what is used to determine your Roth eligibility. If you gross $130k, and contribute $17.5k to your 401(k), and have no other income, that would put your MAGI at $112.5k, which is below the 2014 limit of $114k-to-$129k.
this doesn't make sense. You say that 401k contributions do not go toward MAGI, then talk about how his 401k contributions would affect his MAGI. Unless you have investment losses or tuition expenses, nothing is deductible from your MAGI.
It makes sense. The MAGI excludes 401k contributions.
Worksheet 2-1 is helpful here (it takes the AGI and adds back deductions excluding 401k contributions):
http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000230988
130 - 17.5 = 112.5 puts the OP on the cusp of phase out territory.
After reading more on MAGI it's rediculous how much you gain by putting money towards retirement. I know this is off topic but in just considering the Retirement Savings Credit starts with your MAGI, I was amazed by what you can gain by saving for retirement.
For people who are married:
The cutoff for a 10% multiplier is 59,000
So if you and your spouse were maxing out tax contributions:
tIRA contributions $11,000 (5,500 each)
401k contributions $35000 ($17500 each)
Max Saver credit eligible amount is $4000 : Tax Credit is $400
(That means a married couple making $105,000 or less could take this credit if they are able to max out tax deferred accounts)
A couple making $84,500 or less could take an $800 credit
A couple making $81,500 or less could take a $2000 credit.
That's assuming that they could both max out a 401k, but that's rediculous! That's $2000 free bucks that someone in the middle class could receive.
It would be interesting to see how that compares to simply stopping at the 15% tax bracket.