Contributing to a Roth IRA?

[guitarplayer]

anyone here contributing towards a Roth IRA? it says here http://www.roth-ira-rules.com/roth-ira-rules.html the eligibility is:

Furthermore, your income must be less than the incomes in this range in order to be eligible to contribute towards a Roth IRA plan:

*
$160,000 if filing jointly with spouse
* $110,000 if filing as Single, Head of Household or Separated Individual (living away from spouse for the year)
* $10,000 if you lived with spouse during the year but decide to contribute separately

 

[macdaddy]

I am... also note that they implemented new roth option 403b and 401k plans this year. So if your income is below the thresholds, you can effectively save 20k per year in a roth account, per person.

 

[pfpelican]

I do one for me and one for DW. It's your 'adjusted gross' that is used for eligibility.

 

[yakers]

My wife & I both do Roths. I like them a lot because we now have taxable funds, tax deferred funds and tax free funds, this tax diversification allows for more withdrawal choices. And I figure with the federal deficit that taxes will not go down in ther future.

 

[mickeyd]

DW and I contribute $10k to our Roths. We also convert $10k/year from IRA to Roth.

 

[Coach]

Guitarplayer, I contribute the max each year, early in January. I suspect most of the folks here who can, do.

Coach

 

[retire@40]

Contributing to a Roth is usually a great idea, but you still need to know why you are contributing to a Roth IRA instead of a traditional IRA.

 

[jblack]

hi all, i'm a long time lurker, first-time poster....(ha, feels like this is a radio call-in program!)

QUESTION: i've looked just about everywhere but can't seem to find information regading what happens if you invest in a Roth IRA but then end up making more than the MAGI limits for the year. where are the checks & balances between the IRS and your IRA provider for eligibility?

in my situation DW will be getting out of law school this spring, take the bar, and then start practicing in the fall. i've been maxing out a Vanguard Roth for both of us for the past couple of years but now that I'm earning more and she's about to re-enter the workforce we'll likely go over the MAGI limits.....but not certain since she's not working yet. who knows what she'll make, but in the meantime i've still got the biweekly direct deposit that'll max us out by the end of the year. but in 2008 we'll almost certainly be over the limits.

so what are the official rules? and although i'm not looking to break the law : what happens if you contribute anyway?

 

[gindie]

jblack -

I don't know about how closely the IRS and the IRA broker compare notes.

However, what you need to do if you exceed the MAGI limits is to get that money out of the IRA as soon as possible because you will incur more penalties the longer you keep it in.

As soon as you realize that you will be exceeding the MAGI, notify the IRA broker that you need to W/D your excess contributions AND the associated earnings. You don't pay any taxes or penalties on the contributions, but you will owe ordinary income tax AND 10% penalty on the earnings. The IRA broker will compute the amount of the earnings.

 

[retire@40]

QUESTION: i've looked just about everywhere but can't seem to find information regading what happens if you invest in a Roth IRA but then end up making more than the MAGI limits for the year...so what are the official rules? and although i'm not looking to break the law : what happens if you contribute anyway?

I won't say too much since somebody may start another unprovoked rant from the sidelines about my postings, so here is a reference with no "opinion" from me:

IRC Sec 4973(a) and (b)

If you want an opinion, you can ask someone else since I'm apparently not allowed to state one for fear that I may be portraying myself to look too smart to some people and somehow disguising my opinions as a fact.

 

[dusk_to_dawn]

I always contribute the maximum to my roth ira and also for my wife's roth ira. I like the idea of not having to determine the basis on these investments as I pull them out when I start using them. Just let them grow and enjoy the tax-free gains through the years. I also contribute to 403b and I have to contribute to a pension as well. Of all the retirement savings, I like the Roths the most.

 

[Goonie]

I always contribute the maximum to my roth ira and also for my wife's roth ira. I like the idea of not having to determine the basis on these investments as I pull them out when I start using them. Just let them grow and enjoy the tax-free gains through the years........Of all the retirement savings, I like the Roths the most.

Same here. I max the Roth out each year. This year I hit 50 just prior to the April 16th cut-off for contributions for the 2006 tax year, so I'll be pumping in that extra $1000 "catch-up" sum!!! I'll also be doing the extra "catch-up" for the current year (2007). Then that will be all....as I won't have any earned income after 2007, because I'll be FIRE'd in 9weeks, 6 days!!! Plan on remaining unemployed for the rest of my (hopefully looooong) life!!!

I like the ROTH's mostly because I never have to bother with paying taxes on any of it when I start drawing out. (but that's just me )

 

[Khan]

I think you can contribute the "catch-up" sum if you turn 50 anytime in that year.

 

[firewhen]

Goonie,

If you are turning 50 in April 2007, I am pretty sure that you cannot make the catchup contribution for 2006, even though you may still make an IRA contribution for 2006 in early 2007. You probably could confirm this with Vanguard or Fido, etc. before you do it.

But otherwise to answer the OP, Roths are the most wonderful things. Make withdrawals without worrying about taxes, RMDs, etc.

 

[Martha]

jblack, retire@40 sent you to part of the internal revenue code that provides for an extra tax/penalty on excess contributions. The solution is to undo the contribution before your tax return is due. Most Roth IRA providers have a form for you to complete and they will undo the contribution.

The important thing is to get it done in time.

 

[OAG]

Reporting to the IRS and the IRA (both ROTH and Traditional) is accomplished by ANNUAL filing of Form 5498-ESA by the custodian of the retirement account(s). I assume there is a form filed for other types of retirement accounts. I am sure the IRS has a tracking program well situated to "catch" over contributors.

 

[work4beer]

You want to "recharacterize" your excess Roth IRA contributions to a traditional IRA.

I had to do it one year, it's not too big a deal but annoying. I think I was able to do it with a form from Vanguard, and then also enter the info on Form 8606. Anyways, "recharacterize" is the key word when looking up IRS stuff.