tIRA or rIRA - changing household income

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brownie1022
Posts: 14
Joined: Fri Jan 06, 2017 1:40 pm

tIRA or rIRA - changing household income

Post by brownie1022 » Wed Jan 11, 2017 2:38 pm

Hopefully this is a simple question; I'd like to open an IRA account and am not sure the rules around this.

Household earnings in 2016 were under the income limit for a Roth IRA, but in 2017 we'll be over the limit. I know you can contribute to a Roth IRA for 2016 until April 15th 2017, but can you open a Roth IRA, now, when your current-year earnings will be higher than the current-year income limit?

Secondarily, does it make sense for me to open a Roth IRA? This is likely the last year I'd be able to do so, since my wife was in school last year and in a year or two even if she stops working my income will likely be above the Roth contribution limit.

Tax Filing Status: married filing jointly
Tax Rate:
Federal 28% but will be 33% in 2017
State 5.1%
State of Residence: MA

My wife has a Roth IRA, $8,700, and we'll put $5,500 into it before the 2016 deadline. I'm wondering if it makes sense for me to open a traditional or Roth, and if Roth can I even do so with my income now? Thanks!

Raladic
Posts: 184
Joined: Fri Jan 03, 2014 4:56 pm

Re: tIRA or rIRA - changing household income

Post by Raladic » Wed Jan 11, 2017 4:23 pm

Yes you should be able to open one now, the Brokerage doesn't care (or know) about your limits for account opening.
The limits only matter with regards to contributions.

Yes it may make sense to still open a Roth IRA if you anticipate that you will stay in this higher tax bracket for a while, as it likely also means that you cannot use a deductible traditional IRA and thus using the Roth IRA allows you to get some tax benefits.

Also note that even though your income may be higher in 2017 as you say to not allow you to contribute directly, but you could use what is commonly referred to as the Backdoor Roth IRA strategy - you can find more information in the Wiki here https://www.bogleheads.org/wiki/Backdoor_Roth_IRA or by just searching the forum here.

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