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Roth IRA phase out 

girlnextdoor
Posts: 31

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4/13/2017
girlnextdoor
Posts: 31
Thanks guys. Since I had to pay taxes on it I assumed it would count as income, but it also does make sense that it doesn't count toward determining MAGI for this.

As an update - my financial adviser said I'll get a 1099 for the $26 in income for 2017 that I'll need to file with my taxes next year, but I don't need to make any tax adjustments this year (since we removed the excess contribution and earnings from my Roth).
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retire4lyfe
Posts: 4

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3/29/2017
retire4lyfe
Posts: 4
girlnextdoor -The amount you rolled over doesn't impact your ability to contribute in the current year it is excluded for purposes of determining your Modified AGI (see worksheet 2-1 in Publication 590-A) . But it seems your income alone if filing single would be over the limit and subject to a reduced contribution for 2016. I'm not sure on all the rules, but believe you can remove the additional contributes and earnings prior to April 15, 2017.
See: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016

IRS Publication 590-A: https://www.irs.gov/publications/p590a/index.html

That has all the rules on IRAs both Traditional and Roth.

In the future I would just do a nondeductible IRA (if you don't have any other Traditional IRAs) and just roll them over to a Roth later in the year. Then you don't have to worry about the limits.
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girlnextdoor
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3/27/2017
girlnextdoor
Posts: 31
njhowie, to clarify - I wasn't worried about the rollover pushing me over the limit for what I can contribute from a dollars-into-the-account perspective.

I was worried about what retire4lyfe mentioned - the $11k that I rolled over counts as income for 2016. Since it wasn't taxed when I contributed to my 403(b) years ago, it counts as income to be taxed when rolling over to a Roth. Since my salary + bonus last year was right around 120, this pushed me into the "reduced contribution" range for my 2016 contribution - but I had already contributed the 5500 for 2016.

I did my taxes last week and am working with my adviser to "un-contribute" the few hundred dollars that I'm no longer eligible to contribute. I was looking to understand what the reduced contribution allowance is if AGI is between 117k and 132k, but still haven't figured that out. I just put my info into Turbo Tax and trusted what they told me I'd over-contributed. I'd already contributed my full 5500 for 2017 in January, so had I chosen to re-classify the overage as a 2017 contribution, I would have just been delaying this process for another year.

Unfortunately I now have $26 in earnings from the over-contribution, which I think I am now supposed to report in my 2016 taxes as taxable income. I now need to determine if I can just count it as 2017 income or if I actually need to file an amended tax return for the extra $26 in income.
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retire4lyfe
Posts: 4

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3/16/2017
retire4lyfe
Posts: 4
  • njhowie is correct in that rollovers do not count as contributions which answers your first question.
  • You have until April 15th of the following year to make contributions for the prior year so for 2016 you could make any contributions between January - December 2016 and January - April 15th 2017 as long as they are designated as being for 2016.
  • The phase out limits are based on your filing status and income and there is a formula that is used to determine how much you can contribute between a certain range for example:
  • Single can contribute $5500 to a Roth up to $117,000 in income but a reduced contribution can be made between $117,000 and $131,999, over $132,000 no contribution can be made.
  • Married filing Jointly can contribute $5500 each to a Roth up to $184,000 in income but a reduced contribution can be made between $184,000 and $193,999, over $194,000 no contribution can be made.
These limits can change every year so you have to check to see what they are, the above are for 2016. Just realize that the income is your "Adjusted Gross Income" (AGI) shown on your 1040, not just what you make at your employer(s). Also, any pretax items will reduce your AGI so contributions to a traditional 401k could keep you under the limits.
Even if you are over the limits there maybe a way to still contribute to a Roth IRA. If you don't have any Traditional IRAs (401k are ok) then you can easily do what is called a backdoor contribution. You basically make a contribution to a non deductible Traditional IRA and then at some point in the future you convert it to your Roth IRA as conversions are not limited by income. This is not a taxable event (except for any earnings that you had not already paid taxes on). If you do this every year it can be away to fund a Roth IRA it just requires more steps and tax forms.
If you have Traditional IRAs then it can still be done but it is a lot more complicated and you will end up paying taxes on a portion of the conversion because of the rules on how partial conversions work. I would recommend taking to a tax advisor if you have these types or not even doing the backdoor until you have converted all the Traditional IRAs to Roth IRAs.
Hope this helps answer your questions.
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njhowie
Posts: 77

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3/6/2017
njhowie
Posts: 77
Rollovers do not count as contributions or against your annual contribution limit.
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girlnextdoor
Posts: 31

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3/2/2017
girlnextdoor
Posts: 31
A couple questions about Roth IRAs:

I've been contributing to my Roth for 10 years and maxing it out since 2010 (my first year post-grad school). My income is now close to the limit for full contributions, and last year I rolled over an old 403(b) into my Roth. It was only about $11k, but it might be enough to push me over the limit since it'll count as income on my taxes. I haven't done my taxes for last year yet (because I'm waiting on the 1099 from that rollover), but now it's got me thinking.

1. If I'm over the limit for 2016, what do I do? Is there an automatic penalty, or can I "un-contribute" the overage?
2. Is there a time limit for figuring this out? I've seen "prior to tax day of the following year," but is there a penalty for maxing out your Roth in January vs. December? If you "correct" it, what do you do about any gains you've had since contributing?
3. What are the phase-out limits? That is, I've seen various things online that say you can contribute smaller payments until your income is $XX but I haven't seen what those smaller limits are.

Obviously I'll discuss all of these with my financial adviser, but want to wait until I'm certain if there's an issue (aka, until I do my taxes) before I reach out to him. If I'm (barely) under the limit, then there's no issue for 2016.
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