I must be missing something. According to the IRS, a married filing jointly couple with access to employer retirement plans (401k) cannot utilize a traditional IRA deduction if their modified AGI is greater than $118,000.
http://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work
I don't understand how traditional IRAs work for couples at OPs income level. My wife and I are over $118,000 and have invested in Roth IRAs because of the aforementioned limit. Basically, what is the point of a traditional IRA if your $6,000 contribution cannot be deducted. My reading is that this means you are not making pre-tax contributions, because the $6,000 is not deductible and will in fact be taxed. You can use the Roth conversion ladder later on to avoid taxes on the other end (when you are 59 and 1/2), but that doesn't get rid of the taxes you paid because your contribution was not deductible.
The following exchange on the Mad Fientist's blog seems relevant:
Kristin
December 13, 2013 at 4:51 pm
Loved this article. I checked out the PT Money article you posted. We are married and filing jointly. Our combined income is $150,000. We both max out our employers plan. This quote by PT money caught my eye:
“If you file your taxes as Married Filing Jointly or as a Qualifying Widower in 2013, your income needs to be below $95,000 for you to be able to fully deduct your contributions to a Traditional IRA. If your MAGI is between $95,000 – $115,000 then you are in the “phase-out” range and the amount you can deduct starts “phasing out”. At $115,000 you are unable to deduct the contributions you make to a Traditional IRA.”
So… How do I go about figuring out if a Roth or a traditional IRA will earn more in this situation?
Reply
The Mad Fientist
December 15, 2013 at 3:52 pm
Sorry for the delayed reply, Kristin; I’ve been out of commission for the past few days and haven’t been on my computer much.
If you make too much to deduct contributions to a Traditional IRA, your best bet would be to contribute directly to a Roth IRA. That’s actually the situation I’m in so I just max out my Roth every year.http://forum.mrmoneymustache.com/index.php?action=post;quote=513096;topic=29402.0