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Lower my AGI for a Roth conversion
Old 10-06-2008, 03:40 PM   #1
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Lower my AGI for a Roth conversion

I did a Roth conversion today- selling 3k of one fund in my rollover and buying 3k of same fund in my Roth.

I should be doing this on taxable income of 62k- that was about what my taxable income was in 2007.

Some questions-

My AGI in 2007 was 103k. My wife was out of work collecting about 80% of base pay for around 2-4 weeks this year, plus heath insurance premiums increased (we had twins) plus we used an HSA for about 1.5-2k this year.

How many ways can people suggest I reduce my AGI so this Roth conversion works?

1) increase 401k (put in 11%/8k now, I don't think I could squeeze anything more than $500-$1500 out of this between now and dec

2) sell some stock at a loss (does a capital loss lower AGI?).


I can't think of other ways immediately, if there are suggestions, I am listening.

If the conversion does not work I can recharactorize before April 15 with no tax penalty according to what both T Rowe Price told me and what is in pub 590.
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Old 10-06-2008, 03:44 PM   #2
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You are right about Pub 590. We do those rechar transactions fairly often when folks come up against the income limits for Roths after making the contributions.
I don't think cap gains would help, only reductions of income, like your plan for more contributions to the 401k.
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Old 10-06-2008, 03:51 PM   #3
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Capital losses will lower your AGI - May have a easier time finding them this year. Sell stock at a loss. Any number in () or with a - sign in front on page 1 of your 1040 will help. This is a bit of a stretch (and I am making WAG) but maybe Married Filing Separately may work if you only want to fund one ROTH.
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Old 10-06-2008, 03:58 PM   #4
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Oh, sorry, now that I looked at a 1040 to refresh my memory...any chance you have a small business on the side--business losses will also help.
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Old 10-06-2008, 04:24 PM   #5
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Originally Posted by Sarah in SC View Post
Oh, sorry, now that I looked at a 1040 to refresh my memory...any chance you have a small business on the side--business losses will also help.
Yes- I coached soccer and got paid. My losses should offset the ~2k I earned from that (milage and equipment). But thanks for the heads up on this.
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Old 10-06-2008, 04:44 PM   #6
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Sometimes your company will let you make "annual catch-up" contributions to your 401(k), so that, for example, if you've only been contributing 11% up until now, you might be able to up your contributions to ~25% for the remainder of the year to get you up to your 15% limit (or 15,500 whichever comes first).
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Old 10-06-2008, 05:44 PM   #7
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Originally Posted by Lusitan View Post
Sometimes your company will let you make "annual catch-up" contributions to your 401(k), so that, for example, if you've only been contributing 11% up until now, you might be able to up your contributions to ~25% for the remainder of the year to get you up to your 15% limit (or 15,500 whichever comes first).

I need to play with this-

25% contribution would be close to $1000.

I am contributing $1000/mo to wife's Roth in October and slightly less in November, so this might be doable the last month and a half.
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Old 10-12-2008, 11:52 AM   #8
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bumping this for more input

I am probably going to increase 401k contributions starting Nov 1 paycheck. I have 4 paychecks between Nov 1 and years end (Nov 1, Nov 15, Dec 1, Dec 15) and need to adjust pay by $3000.

Meaning I need 3k less on my AGI for 2008 than I had for 2007.
If I am thinking about this right, I need $750 extra to be put into 401k each paycheck, so I need to divide my current NET take home into 750 and figure out the 401k% to use.

Does this make sense?

example- gross pay is 3000 per check
if current 401k is 11%, the net take home is 2670

750/2670=28%

so 401k needs to be 11%+28%=39% to make this work?
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Old 10-12-2008, 12:45 PM   #9
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Originally Posted by jIMOh View Post
I did a Roth conversion today- selling 3k of one fund in my rollover and buying 3k of same fund in my Roth.

If the conversion does not work I can recharactorize before April 15 with no tax penalty according to what both T Rowe Price told me and what is in pub 590.
MAGI is affected by almost everything above line 37, Adjusted Gross Income, and a few things not part of AGI. Definitely capital gains and losses. However, if you ahve no capital gains, remember that loss deductions are capped at $3000 in any tax year, so if your $102,000 AGI doesn not include any capoital gains, or if you perhaps have some tax free interest, you may not get below the $100,000 MAGI limit for conversions.

Ha
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