Pay increase. Am I still eligible for a Roth IRA in 2015?

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Topic Author
durazno

Pay increase. Am I still eligible for a Roth IRA in 2015?

Post by durazno »

In 2014 I held two jobs with slightly different salaries. In 2015 I'm glad to say I'm getting a base salary increase and a performance bonus. I suspect this year I'll be paid $135k-140k, depending on how commissions go. How do I go about assessing if I'll be eligible for a Roth IRA? Do I need to calculate my 2014 AGI first, and then try to base my 2015 expected AGI on that? Or should I just assume I'm over the limit and do a backdoor Roth? My sources of taxable income include work compensation, dividends from taxable Vanguard account and an online savings account with minimal interest.

From the IRS...
Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:
$127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and


Thanks,
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livesoft
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Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by livesoft »

I'd ask this question later in the year when you have more visibility about your 2015 income.

But if you put $24,000 into your 401(k) and have a $3000 capital loss, then your MAGI should be well within the limit unless you get a nice bonus or have lots of dividends from astute investing.

For singles the phaseout starts at $116K, so you might not know until January 2016 what the story is.
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Topic Author
durazno

Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by durazno »

livesoft wrote:I'd ask this question later in the year when you have more visibility about your 2015 income.

But if you put $24,000 into your 401(k) and have a $3000 capital loss, then your MAGI should be well within the limit unless you get a nice bonus or have lots of dividends from astute investing.

For singles the phaseout starts at $116K, so you might not know until January 2016 what the story is.
I must've read the IRS info wrong. I'm single so the $116k applies. The $135k-140k total gross pay is a pretty accurate estimate. The only real variable is commission but it'll only make up $4-8k of the $135-140k so not a substantial piece of the pie.

That said, should I hold off on making any 2015 Roth contributions till I do my 2014 taxes then? If yes, how do you recommend I go about assessing the 2015 AGI, once taxes are done?

As for 401k, I maxed out in 2014 and I'll do it again this year.

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livesoft
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Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by livesoft »

I have held off making a 2014 Roth contribution until I know our income for 2014. Yes, I wrote 2014.

I recommend you hold off until January 2016 (not 2015) when you really know your income as well. Or just backdoor from the get-go if you can. I cannot backdoor because of interfering rollover iRAs.

Estimate:
$140K - $24K(401k contrib) - $3K(capital loss) + $5K (dividends) - $?? (HSA) - $??(pre-tax health insurance) = ????

Lots of danger in this range because of bonuses or maybe your 401(k) contribution gets limited due to HCE things or something else.
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Topic Author
durazno

Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by durazno »

livesoft wrote:I have held off making a 2014 Roth contribution until I know our income for 2014. Yes, I wrote 2014.

I recommend you hold off until January 2016 (not 2015) when you really know your income as well. Or just backdoor from the get-go if you can. I cannot backdoor because of interfering rollover iRAs.

Estimate:
$140K - $24K(401k contrib) - $3K(capital loss) + $5K (dividends) - $?? (HSA) - $??(pre-tax health insurance) = ????

Lots of danger in this range because of bonuses or maybe your 401(k) contribution gets limited due to HCE things or something else.
Thanks. I have one traditional IRA with $155k. If I were to contribute now and convert to Roth, I'd have to pay tax on that whole $155k at a relatively high rate. This doesn't seem wise. Correct me if I'm wrong.

On the other hand, I could investigate moving the TIRA into my 401k with my current employer, which has some index funds. Does this make more sense?

Out of curiosity, what happens in situations when you move your deductible TIRA money to your 401k, then contribute nondeductible to the TIRA and convert to Roth, and then later in the year you end up leaving your employer and want to roll the 401k back into the TIRA? Would that not be possible? Would you need to keep the money in the 401k for the rest of that calendar year or something? Only reason I ask is well, you never know what might happen with employment opportunities.
cherijoh
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Location: Charlotte NC

Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by cherijoh »

icedtea wrote:
livesoft wrote:I have held off making a 2014 Roth contribution until I know our income for 2014. Yes, I wrote 2014.

I recommend you hold off until January 2016 (not 2015) when you really know your income as well. Or just backdoor from the get-go if you can. I cannot backdoor because of interfering rollover iRAs.

Estimate:
$140K - $24K(401k contrib) - $3K(capital loss) + $5K (dividends) - $?? (HSA) - $??(pre-tax health insurance) = ????

Lots of danger in this range because of bonuses or maybe your 401(k) contribution gets limited due to HCE things or something else.
Thanks. I have one traditional IRA with $155k. If I were to contribute now and convert to Roth, I'd have to pay tax on that whole $155k at a relatively high rate. This doesn't seem wise. Correct me if I'm wrong.

On the other hand, I could investigate moving the TIRA into my 401k with my current employer, which has some index funds. Does this make more sense?

Out of curiosity, what happens in situations when you move your deductible TIRA money to your 401k, then contribute nondeductible to the TIRA and convert to Roth, and then later in the year you end up leaving your employer and want to roll the 401k back into the TIRA? Would that not be possible? Would you need to keep the money in the 401k for the rest of that calendar year or something? Only reason I ask is well, you never know what might happen with employment opportunities.
I would definitely wait until Jan 2016 to make any 2015 Roth contribution as Livesoft suggests. The backdoor option doesn't look very appealing with $155K in a Rollover IRA. But you should definitely look into a rollover into your 401k IF your plan permits it. (This isn't always the case).

Yes, if you wanted to do a Backdoor Roth for 2015 you need to keep the money in the 401k. Everything is based on your balance as of Dec 31st, not when the conversion takes place.
Topic Author
durazno

Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by durazno »

cherijoh wrote: I would definitely wait until Jan 2016 to make any 2015 Roth contribution as Livesoft suggests. The backdoor option doesn't look very appealing with $155K in a Rollover IRA. But you should definitely look into a rollover into your 401k IF your plan permits it. (This isn't always the case).

Yes, if you wanted to do a Backdoor Roth for 2015 you need to keep the money in the 401k. Everything is based on your balance as of Dec 31st, not when the conversion takes place.
Ok I'll look into whether I can move my TIRA to my 401k, and will wait till early 2016 for any more Roth contributions.

So is it safe to assume that, in general, if you have a big TIRA deductible balance already, your 401k doesn't allow for inbound transfers from your TIRA, and your AGI is above the Roth limit, you're out of luck and simply don't contribute to a Roth anymore? No other possibilities? I suspect many Bogleheads are in this boat but I could be wrong.
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retiredjg
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Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by retiredjg »

icedtea wrote:So is it safe to assume that, in general, if you have a big TIRA deductible balance already, your 401k doesn't allow for inbound transfers from your TIRA, and your AGI is above the Roth limit, you're out of luck and simply don't contribute to a Roth anymore? No other possibilities? I suspect many Bogleheads are in this boat but I could be wrong.
Under the stated circumstances, you are out of luck in terms of contributing more to Roth IRA. But you can always contribute to taxable. That's another "possibility".

Or if you have a side job you can set up a Solo 401k at Fido (not Vanguard) which will accept the inbound tIRA rollover, clearing the way to use the back door.

You are allowed to use the back door even if you are eligible to use the front door. So if you want to go ahead with your Roth contribution, you can do it now if you want. But that tIRA absolutely MUST be out of the way by 12/31 or it will be prorated with the conversion you do in the back door maneuver.
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Epsilon Delta
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Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by Epsilon Delta »

icedtea wrote: Out of curiosity, what happens in situations when you move your deductible TIRA money to your 401k, then contribute nondeductible to the TIRA and convert to Roth, and then later in the year you end up leaving your employer and want to roll the 401k back into the TIRA? Would that not be possible? Would you need to keep the money in the 401k for the rest of that calendar year or something? Only reason I ask is well, you never know what might happen with employment opportunities.
The only things that matters is if the money is in a in traditional IRAs at the end of the year, you can move it back and forth as many times as you can (the 401(k) custodians are likely to limit this). So yes the solution would be to delay rolling the the 401(k) back to a tIRA until after the end of the year.
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retiredjg
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Re: Pay increase. Am I still eligible for a Roth IRA in 2015

Post by retiredjg »

Epsilon Delta wrote: So yes the solution would be to delay rolling the the 401(k) back to a tIRA until after the end of the year.
Or rolling it into your next 401k so that you can continue to do back door contributions to Roth in future years.
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