Roth IRA - income eligibility question

[nbellinger]

Hi everyone, brand new to the forum, and fairly new to planning for retirement.

This is probably a very dumb question for those of you on this forum, so I'll ask for forgiveness first...

My question is about the Roth IRA income eligibility- what I am reading says that if you file taxes 'married filing jointly', then your MAGI must be below a certain number (178k for 2013) for you to be able to contribute the full amount. My question is, is that number (178k) MY income, or the couples combined income?

As I understand it, and correct me if I am wrong, the Roth IRA is an individual account (not a joint account).

 

[REWahoo]

Combined income:

If you are filing jointly as a married couple, the following limits apply on your [2012]contributions. If your combined taxable income is under $173,000 you can contribute the maximum amount to your Roth IRA. If it is $173,000 to $183,000 you can make a contribution, but only a reduced amount. Finally, if your MAGI combined is over $183,000 you are not allowed to contribute to your Roth IRA

Roth IRA Income Limits 2012

 

[Alan]

Combined income:

Roth IRA Income Limits 2012

+1

Note that if you do not meet that limit then you can still make a non-deductible tIRA contribution and then immediately do a Roth conversion on it.

 

[Amethyst]

Presumably there would be no tax liability to such a conversion, since the t-IRA would not have had a chance to accumulate any tax-deferred income?

(I am aware this will have been discussed previously; I'm not feeling up to searching out the posts dealing with this specific question).

Amethyst

+1

Note that if you do not meet that limit then you can still make a non-deductible tIRA contribution and then immediately do a Roth conversion on it.

 

[Alan]

Presumably there would be no tax liability to such a conversion, since the t-IRA would not have had a chance to accumulate any tax-deferred income?

(I am aware this will have been discussed previously; I'm not feeling up to searching out the posts dealing with this specific question).

Amethyst

Correct, no taxes except on any gains that may happen between the contribution and the conversion. If it is next day then you would expect very little gain or loss.

 

[Animorph]

Just be sure you don't also have pre-tax IRA's to go along with your non-deductible IRA. You must "pool" all your traditional IRA's when Roth converting, which may have you paying some tax. This scheme is called a "backdoor" Roth contribution, which you can Google.

 

[bUU]

And note that it is currently an open question as to whether the budget deal signed into law last night (this morning?) will change things in 2013 such that the "pooling" of money that Animorph referred to would extent to include 401(k) money. So far, among those posters on various forums that I have some confidence in, it's running 3-to-7 against the pooling to include 401(k), i.e., 7-to-3 in favor of separate pools for IRA Roth conversions and 401(k) Roth conversions. Still too close to call for my tastes.

 

[retire2020]

Does line 43(Taxable Income) on 1040 determine MAGI? My 2011 1040 Form had following and my CPA told me that I could contribute 5K/each in ROTH IRA for me and DW which I did.

Line 38 -- 190.8K
Line 43 -- 149.2K

 

[panacea]

It's based on line 38.

 

[ronocnikral]

And note that it is currently an open question as to whether the budget deal signed into law last night (this morning?) will change things in 2013 such that the "pooling" of money that Animorph referred to would extent to include 401(k) money. So far, among those posters on various forums that I have some confidence in, it's running 3-to-7 against the pooling to include 401(k), i.e., 7-to-3 in favor of separate pools for IRA Roth conversions and 401(k) Roth conversions. Still too close to call for my tastes.

False.

 

[kaneohe]

MAGI

Modified Adjusted Gross Income

see the section on Modified AGI

 

[bUU]

And note that it is currently an open question as to whether the budget deal signed into law last night (this morning?) will change things in 2013 such that the "pooling" of money that Animorph referred to would extent to include 401(k) money. So far, among those posters on various forums that I have some confidence in, it's running 3-to-7 against the pooling to include 401(k), i.e., 7-to-3 in favor of separate pools for IRA Roth conversions and 401(k) Roth conversions. Still too close to call for my tastes.

False.

First, what the heck are you talking about? What I wrote was unequivocally true: The number of reliable posters in those various discussion forums, who were projecting one interpretation versus the other, ran 3-to-7 against pooling to include 401(k).

Second, once the text of the bill was released, it became clear that it was simply expanding eligibility for the 401(k) Roth conversions that were permitted in Tax Year 2012 and prior, making it clear that those who guessed that the pooling of fund that affects Roth IRA conversions would not be expanded to include the 401(k)s - so the majority of people were correct.

Third, if you're going to mosey on in to a thread nine days later, and comment on what folks were saying about a breaking news story as it was breaking, please acknowledge that in your reply.

 

[ronocnikral]

First, what the heck are you talking about? What I wrote was unequivocally true: The number of reliable posters in those various discussion forums, who were projecting one interpretation versus the other, ran 3-to-7 against pooling to include 401(k).

Second, once the text of the bill was released, it became clear that it was simply expanding eligibility for the 401(k) Roth conversions that were permitted in Tax Year 2012 and prior, making it clear that those who guessed that the pooling of fund that affects Roth IRA conversions would not be expanded to include the 401(k)s - so the majority of people were correct.

Third, if you're going to mosey on in to a thread nine days later, and comment on what folks were saying about a breaking news story as it was breaking, please acknowledge that in your reply.

It was an inaccuracy, 9 days old or not. No offense was intended towards you. We've all been wrong before. Just wanted to make sure someone didn't look this up later and think your little "poll" had any significance or accuracy.

 

[bUU]

Understood... Thanks... it was hard to get that from your original reply. That message was posted very early on, before the text of the bill came out. But to be clear, a majority of the people guessing were accurate, as far as I know: Unless you've read something different, the pro rata rule as it applies to a conversion of a tIRA into a Roth IRA will not be affected.

(And anyone making financial decisions based on a survey of message board comments, as indeterminate as 3-to-7, is crazy! )

 

[Bogie]

I am nearing early retirement and think this is my last working year. I plan to do roth conversions as soon as I retire and am in a lower tax bracket. I had always chosen to do max contributions to my 401k since I'm in a relatively high tax bracket and will be in a lower tax bracket at retirement. What blind-sided me was the following about ROTH. I had always looked at ROTH unfavorably because I would have to pay tax up front but it occurred to me that I could move some funds from accounts I have that have already been taxed in years past to a ROTH and from that point forward all earnings would be tax-free. I just never looked at these contributions in this way. I'll just have to make sure our income is under the ROTH income limits. Anyway, it seems obvious now I should have been moving these after-tax funds to ROTH all along. This is just a new perspective to me. Am I the only one that missed this chance to earn tax-free money?