Roth IRA / 401K question

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Topic Author
bedlin
Posts: 13
Joined: Sat Jan 23, 2010 7:47 pm

Roth IRA / 401K question

Post by bedlin »

Question:

My wife stays at home. I work. This year, my gross will be about $177,000, which exceeds the ROTH IRA income limits for 2010, which I believe is in the $165K range. I contribute the max to my 401K, and as a result, my AGI winds up being well under the ROTH IRA limit, thereby making me eligible for the ROTHA IRA.

I am pretty sure I can fund the ROTH IRA based on AGI below the ROTH IRA limit, even if to get there, I am counting my employee contributions to a 401K of the max amount in 2010 -- $16,500. However, if anyone can reassure me of this or confirm it, that would be helpful.

My plan in the future would be to max out 401K, effectively making the ROTH IRA limit $16,500 higher than the "normal" income cutoff (or whatever the max 401K amount is in the future).

Thanks in advance.
cliffedelgado
Posts: 105
Joined: Fri Apr 16, 2010 1:52 am

Post by cliffedelgado »

Looks like the limit is 167k for full amount to roth IRA. Phase out between 167k and 177k. It all depends on your modified AGI.

And yes, contributing to the 401k reduces it and can make you eligible. I do this myself as well
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Post by Bob's not my name »

401k contributions and FSA contributions and pre-tax health insurance premiums reduce your AGI. Non-401k, non-IRA investment income adds to your AGI, as do other forms of non-salary compensation such as RSUs, ESPP, option exercises, bonus, etc. You should answer your question yourself by looking at your 2009 1040 to see what factors determined your AGI (bottom number on first page) and reading the appropriate pages in Pub 590, which is not hard to understand, to see how MAGI is determined from AGI for Roth eligibility purposes.

The $167k-$177k phaseout range for Roth IRAs is also the phaseout for a spouse tIRA, which you might prefer for your non-working spouse vs. a second Roth, depending on how your state tax treats IRAs and on whether a spouse tIRA could save you from some phaseouts.

If your AGI is in the $160k-$167k range, you are also being phased out of the Making Work Pay credit (equivalent to a 2% incremental marginal rate) and the American Opportunity Credit (equivalent to a 12.5% incremental marginal rate per child in college in this calendar year).
Topic Author
bedlin
Posts: 13
Joined: Sat Jan 23, 2010 7:47 pm

Post by bedlin »

Thanks, cliffedelgado. Thats what I thought. Just wanted to bouce it off someone else too. I guess the "bottom line" (no pun intended) is what is the number on the bottom of page 1 of your 1040, for purposes of determining eligibility for a ROTH IRA. Thanks.
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