Confusion about Roth IRA income contribution limit

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Topic Author
FB01
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Joined: Fri May 20, 2011 12:36 am

Confusion about Roth IRA income contribution limit

Post by FB01 »

Hello,

For Roth IRA contribution income limit, I believe I need to see tax line item 37 in 1040 form which should not go beyond 193K for Married-Filling Jointly. I always do Standard deduction. This year I changed jobs and have got RSU's and might be getting some bonus (getting both for the first time). Now, I would like to check back with you guys whether RSU income and Bonus..does it gets included in my W2 form.

The reason I ask is because of this, I might be over Roth IRA Contribution limit income

For now, I am just counting below to estimate my income for Roth IRA contribution limit (I am also not deducting Standard deduction-husband and wife and Exemption per family member as these 2 comes after line 37)

W2 (should include my wages, RSU's and Bonus amount??)
Taxable Interest
Ordinary Dividend
Qualified Dividend
Capital Gain

Can anybody please help confirm?

-Thanks,
FB
Thanks, | FB
DSInvestor
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Re: Confusion about Roth IRA income contribution limit

Post by DSInvestor »

I believe bonuses are included in W-2. I'm not familiar with RSU. Contributions to Traditional 401k will reduce the amount on box 1 of the W-2 which flows into box 7 of 1040 and is included in AGI. Roth 401k contributions do not reduce your W-2 box 1.

Modified Adjusted Gross Income for Roth IRA purposes starts with AGI and makes modifications. Here's a link to an IRS page showing worksheet 2-1 to calculate MAGI for Roth IRA purposes:
http://www.irs.gov/publications/p590a/c ... 1000230985
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celia
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Re: Confusion about Roth IRA income contribution limit

Post by celia »

FB,

You may be able to do backdoor Roth contributions instead. See:
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

However, if you already have deductible contributions in any traditional IRA, you may have second thoughts. If you have questions, just ask. There are also many threads here that talk about backdoor Roth contributions.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
FB01
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Re: Confusion about Roth IRA income contribution limit

Post by FB01 »

celia wrote:FB,

You may be able to do backdoor Roth contributions instead. See:
https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

However, if you already have deductible contributions in any traditional IRA, you may have second thoughts. If you have questions, just ask. There are also many threads here that talk about backdoor Roth contributions.
Hi Celia,

Yes..I am planning to do backdoor Roth IRA but first I want to make sure how the contribution limit for Roth IRA works.

DSInvester confirmed...bonus comes in W2 but are you aware whether RSU's are also included in W2..would appreciate if you can reply to my initial question.
Thanks, | FB
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celia
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Re: Confusion about Roth IRA income contribution limit

Post by celia »

Why don't you start a new thread with "Restricted Stock Unit (RSU)" in the title with a question specific to that investment. Many of us don't know anything about them (including me) but a new thread specifically for that topic will hopefully catch the attention of those who are familiar with them.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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retiredjg
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Re: Confusion about Roth IRA income contribution limit

Post by retiredjg »

FB01 wrote:For Roth IRA contribution income limit, I believe I need to see tax line item 37 in 1040 form which should not go beyond 193K for Married-Filling Jointly.
Did you notice that DSInvestor mentioned the term Modified AGI?

Line 37 is your AGI but what you need to calculate is the Modified AGI as defined for Roth IRA. It may not be the same as your AGI.
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TomatoTomahto
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Re: Confusion about Roth IRA income contribution limit

Post by TomatoTomahto »

...but are you aware whether RSU's are also included in W2...
RSUs are included in W2s in the tax year that they vest, not the year in which they are granted. Their value is also determined on the vesting day, not the grant day.
I get the FI part but not the RE part of FIRE.
Topic Author
FB01
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Re: Confusion about Roth IRA income contribution limit

Post by FB01 »

retiredjg wrote:
FB01 wrote:For Roth IRA contribution income limit, I believe I need to see tax line item 37 in 1040 form which should not go beyond 193K for Married-Filling Jointly.
Did you notice that DSInvestor mentioned the term Modified AGI?

Line 37 is your AGI but what you need to calculate is the Modified AGI as defined for Roth IRA. It may not be the same as your AGI.
Retiredjg,

I went through the link and just to make sure as I do not have those deduction mentioned in the link. To make it simple, can anyone please confirm if the Roth IRA Contribution Income limit has the below. It does not consider the Standard deduction and Exemptions per family member

W2 (Includes Bonus and RSU's that vest in the current year)
Taxable Interest
Dividends - Ordinary/Qualified
Capital Gain

If the Total of above goes beyond 191K for Married (Filing jointly), I cannot to Roth IRA contribution. After this MAGI, all the deductions will occur which are not considered for the Roth IRA contribution limit.

I would appreciate if anyone can confirm.

-FB
Thanks, | FB
Spirit Rider
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Re: Confusion about Roth IRA income contribution limit

Post by Spirit Rider »

We can not confirm, because we do not know all the elements of your 1040.

As has been described; Your Roth MAGI is line 37 adjusted by the ROTH MAGI worksheet.

If you complete both of these, you will have your answer.
DSInvestor
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Re: Confusion about Roth IRA income contribution limit

Post by DSInvestor »

FB01 wrote:
retiredjg wrote:
FB01 wrote:For Roth IRA contribution income limit, I believe I need to see tax line item 37 in 1040 form which should not go beyond 193K for Married-Filling Jointly.
Did you notice that DSInvestor mentioned the term Modified AGI?

Line 37 is your AGI but what you need to calculate is the Modified AGI as defined for Roth IRA. It may not be the same as your AGI.
Retiredjg,

I went through the link and just to make sure as I do not have those deduction mentioned in the link. To make it simple, can anyone please confirm if the Roth IRA Contribution Income limit has the below. It does not consider the Standard deduction and Exemptions per family member

W2 (Includes Bonus and RSU's that vest in the current year)
Taxable Interest
Dividends - Ordinary/Qualified
Capital Gain

If the Total of above goes beyond 191K for Married (Filing jointly), I cannot to Roth IRA contribution. After this MAGI, all the deductions will occur which are not considered for the Roth IRA contribution limit.

I would appreciate if anyone can confirm.

-FB
The entire first page of the 1040 tax form is to get to your AGI. We do not know what your tax situation is.

1. Pls try to calculate your AGI and then make adjustments to get your MAGI for Roth IRA purposes.

2. Your number of 191K for MAGI for Roth IRA purposes is wrong. Here's a link to an IRS page showing limits for 2015 tax year:
http://www.irs.gov/Retirement-Plans/Amo ... e-For-2015

If you and your spouse are looking to max out Roth IRA contributions, MAGI for Roth IRA purposes must be under 183K. Reduced contributions are permitted if MAGI is between 183K and 193K. No Roth IRA contributions permitted if MAGI exceeds 193K.

Are you and your wife contributing to 401k, 403b, or 457b? Traditional contributions to 401k, 403b,457b will help reduce your AGI which in turn helps reduce your MAGI for Roth IRA purposes. If you are making Roth 401k contributions and have not maxed out for 18K, you have time to switch to Traditional 401k contributions.
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Topic Author
FB01
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Re: Confusion about Roth IRA income contribution limit

Post by FB01 »

-FB[/quote]
The entire first page of the 1040 tax form is to get to your AGI. We do not know what your tax situation is.

1. Pls try to calculate your AGI and then make adjustments to get your MAGI for Roth IRA purposes.

2. Your number of 191K for MAGI for Roth IRA purposes is wrong. Here's a link to an IRS page showing limits for 2015 tax year:
http://www.irs.gov/Retirement-Plans/Amo ... e-For-2015

If you and your spouse are looking to max out Roth IRA contributions, MAGI for Roth IRA purposes must be under 183K. Reduced contributions are permitted if MAGI is between 183K and 193K. No Roth IRA contributions permitted if MAGI exceeds 193K.

Are you and your wife contributing to 401k, 403b, or 457b? Traditional contributions to 401k, 403b,457b will help reduce your AGI which in turn helps reduce your MAGI for Roth IRA purposes. If you are making Roth 401k contributions and have not maxed out for 18K, you have time to switch to Traditional 401k contributions.[/quote]


DSInvestor...

Ahhh...my wife does not work but I contribute to 401K fully..that helps...so out of my MAGI, I will need to deduct 18K.

You mentioned "The entire first page of the 1040 tax form is to get to your AGI.". That helps, as I was not sure if Page 2 (Tax and Credits) come into picture. My Tax situation is pretty simply..Standard deduction...W2 + Taxable Interest +Dividends + Gains - 401K contribution = should not be greater than 183K...
Thanks, | FB
nolesrule
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Re: Confusion about Roth IRA income contribution limit

Post by nolesrule »

401k contributions already reduce your income reported on the W-2.
DSInvestor
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Re: Confusion about Roth IRA income contribution limit

Post by DSInvestor »

FB01 wrote: DSInvestor...

Ahhh...my wife does not work but I contribute to 401K fully..that helps...so out of my MAGI, I will need to deduct 18K.

You mentioned "The entire first page of the 1040 tax form is to get to your AGI.". That helps, as I was not sure if Page 2 (Tax and Credits) come into picture. My Tax situation is pretty simply..Standard deduction...W2 + Taxable Interest +Dividends + Gains - 401K contribution = should not be greater than 183K...
If you're using your Salary+bonus as a starting point as an estimate for your W-2 Salary, you should subtract 18K of Traditional 401k contributions as you calculate your AGI. If you're taking your W-2 box 1 number as the starting point you don't want to subract it because that already has your Trad401k contributions taken into account. If you contribute to Traditional 401k, you will notice that your W2 box 1 has a smaller number than your box 3 (social security wages) and box 5 (medicare wages). W-2 box 1 is the number that flows into 1040 form line 7.

Page 2 of the 1040 tax form is not considered for MAGI for Roth IRA purposes. Page 1 calculates AGI. Page 2 starts with AGI and calculates Taxable Income and Tax liability. Once you have your AGI (bottom of page 1), make modifications to get your MAGI for Roth IRA purposes.
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DSInvestor
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Re: Confusion about Roth IRA income contribution limit

Post by DSInvestor »

nolesrule wrote:401k contributions already reduce your income reported on the W-2.
OP is probably not be working off a W-2 this early in the year. If estimating AGI using his gross salary, he should subtract Traditional 401k contributions. If working off W-2 box 1, then there is no need to do so as that number is already adjusted for Trad 401k contributions.
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retiredjg
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Re: Confusion about Roth IRA income contribution limit

Post by retiredjg »

I think you still may not be understanding.
W2 + Taxable Interest +Dividends + Gains - 401K contribution = should not be greater than 183K
No, you don't get to subtract the 401k contribution because it was not included in the W2 entry on line 7 Form 1040 in the first place.

Your AGI and modified AGI are calculated before you get to the place in your return where you take out deductions and exemptions. Page 2 does not come into the picture at all.
nolesrule
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Re: Confusion about Roth IRA income contribution limit

Post by nolesrule »

DSInvestor wrote:
nolesrule wrote:401k contributions already reduce your income reported on the W-2.
OP is probably not be working off a W-2 this early in the year. If estimating AGI using his gross salary, he should subtract Traditional 401k contributions. If working off W-2 box 1, then there is no need to do so as that number is already adjusted for Trad 401k contributions.
Right. For estimating.

But the OP wrote...
W2 + Taxable Interest +Dividends + Gains - 401K contribution = should not be greater than 183K
I was just trying to make it clear that doing that math would "double count" 401k contributions.
DSInvestor
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Re: Confusion about Roth IRA income contribution limit

Post by DSInvestor »

nolesrule wrote: But the OP wrote...
W2 + Taxable Interest +Dividends + Gains - 401K contribution = should not be greater than 183K
I was just trying to make it clear that doing that math would "double count" 401k contributions.
My apologies. You're absolutely correct.
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retiredjg
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Re: Confusion about Roth IRA income contribution limit

Post by retiredjg »

nolesrule wrote:I was just trying to make it clear that doing that math would "double count" 401k contributions.
How about "double uncount"…. :happy
nolesrule
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Re: Confusion about Roth IRA income contribution limit

Post by nolesrule »

retiredjg wrote:
nolesrule wrote:I was just trying to make it clear that doing that math would "double count" 401k contributions.
How about "double uncount"…. :happy
:sharebeer
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