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Excess Roth IRA contribution
Old 02-22-2017, 09:28 AM   #1
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Excess Roth IRA contribution

I did a Google search on this topic but could not find anything about my particular situation regarding an excess Roth contribution.

My tax software tells me I have an excess contribution to my Roth IRA for 2016. I have both a traditional and a Roth IRA, and I contributed $2,500 to the Roth and $2,000 to the traditional for 2016. But (and I think this is the kicker) I also have a solo 401(k) that I contributed $15,000 to. It appears that my contributions are somehow limited relative to my earned income, of which I had roughly $19k in 2016. But I can't find any sort of online calculator or reference that will tell me how much I'm allowed to contribute to each of these (Roth, tIRA, 401k) based on my earned income. There are calculators that show how much you can contribute to the 401(k) alone based on income, but nothing that I can find that shows how these various contributions can limit each other.

Is there some sort of calculator or formula that will tell me what I'm able to contribute to each of the different retirement accounts based on a) earned income and b) what I contributed to the other accounts?

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Old 02-22-2017, 09:45 AM   #2
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Your total contributions to all forms of tax deferred accounts cannot be greater than your earned income -- this is where your problem is.

In addition, your 401K contribution cannot be greater than $18K ($24K if you are over 50). The sum of your tIRA and Roth contributions cannot be greater than $5.5K ($6.5K if you are over 50).

In your case, the total allowed contributions would be $19K, but your numbers add up to $19.5K. You can take the extra $500 (plus earnings) out of any of the accounts, it doesn't have to come out of the Roth. It might just be that your tax software asks for Roth info last, so that's where it detects the overage.

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Old 02-22-2017, 10:34 AM   #3
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Break your solo 401K into your contribution and "you as the employer".

Here is a calculator for the solo part:
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Old 02-22-2017, 10:45 AM   #4
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As a side note:

You can have both a solo-401K IRA and a solo-401K ROTH, but the "employer" portion can only go into the solo-401K IRA.
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Old 03-06-2017, 01:29 AM   #5
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You can also do a backdoor Roth Contribution which doesn’t count!

Do a Roth Conversion of say $30,000. Assuming your combined tax rate is 33.33%, you would owe $10,000 of that in taxes. If you had that amount withheld by the broker from the converted amount, only $20,000 would end up in your Roth. But you can also do the conversion and withhold zero. The entire $30,000 goes into your Roth and you then pay the $10,000 from other sources.

Basically you just did an additional $10,000 contribution to your Roth disguised as paid taxes!

As a secondary advantage, you also just reduced the size of your age 70 Minimum Required Distributions!
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Old 03-06-2017, 09:50 AM   #6
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Online Calculator that I used was not accurate. I had to recontribute after doing my tax on Turbotax which was a pain. Vanguard finally corrected the contribution. I ended up put more under employer contribution, less under employee. When do I know it's the right amount? When I paid the least amount of tax and no over contribution penalty.
Btw, for Solo401k, one can contribute more than $18K.

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