Seeking 2017 IRA contribution clarification

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5head
Posts: 8
Joined: Fri Jun 16, 2017 10:49 am

Seeking 2017 IRA contribution clarification

Post by 5head » Mon Jun 19, 2017 9:38 am

Subject: Seeking 2017 IRA contribution clarification

Hello –

I have a question about 2017 IRA contribution and seeking clarification of what I understand –
Tax File Status: Single
Gross salary: $118,000/year
Age: Under 50

Question #1: I’m I allowed to contribute the full $5,500 into a Roth IRA? If not, I’m I allowed to contribute the full $5,500 into a traditional IRA?

Question #2: Employer may transfer my employment contract to our international office and have me work/live internationally sometime this year (2017). If I understand the rules, if one lives and works outside of the US, then that person cannot contribute to their IRA. What would happen legally/ financially to me if I contribute to my IRA then I move out of the country later this year?

Thanks!
5head

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flamesabers
Posts: 1063
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: Seeking 2017 IRA contribution clarification

Post by flamesabers » Mon Jun 19, 2017 11:09 am

1. If you're MAGI is equal to or less then $118k, you can contribute the full $5.5k to a Roth IRA. If your MAGI is greater then $118k, you can only make a partial contribution up until your MAGI hits $133k.

You can always contribute money to a traditional IRA, but the contribution won't be tax deductible. Are you looking to do a backdoor Roth?

2. If you became ineligible to contribute to an IRA, you would have to withdraw the excess contribution and pay taxes on any earnings. Otherwise you would have to pay a 6% penalty on the excess contribution

Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Seeking 2017 IRA contribution clarification

Post by Alan S. » Mon Jun 19, 2017 11:32 am

5head wrote:Subject: Seeking 2017 IRA contribution clarification

Hello –

I have a question about 2017 IRA contribution and seeking clarification of what I understand –
Tax File Status: Single
Gross salary: $118,000/year
Age: Under 50

Question #1: I’m I allowed to contribute the full $5,500 into a Roth IRA? If not, I’m I allowed to contribute the full $5,500 into a traditional IRA?

Question #2: Employer may transfer my employment contract to our international office and have me work/live internationally sometime this year (2017). If I understand the rules, if one lives and works outside of the US, then that person cannot contribute to their IRA. What would happen legally/ financially to me if I contribute to my IRA then I move out of the country later this year?

Thanks!
5head


Q1 - Your income limit is based on MAGI, not gross salary. MAGI is likely to be lower than gross salary but you need to check the definition to determine how much lower.

Q2- Income you exclude under the foreign earned income exclusion does NOT reduce your MAGI for Roth contribution purposes even though you are not taxed on that income. In addition such income does NOT count as earned income, therefore in 2018 when you are overseas for the entire year unless your income exceeds the FEIE exclusion you will not have the earned income to make any kind of IRA contribution. This year you will have earned income before you leave the US so for 2017 the only question is whether your MAGI will be too high or not. If your MAGI is too high for a Roth contribution you could recharacterize it as a non deductible TIRA contribution. You could then convert tax free to a Roth if you do not have any other non Roth IRA balance. You will have plenty of time to correct any excess contribution once your 2017 tax details are clear next spring, but if you know your taxable income is going to be low enough to make a Roth conversion worthwhile, you have to do the conversion in 2017 and if you do have non Roth IRA balances available for conversion, then your back door Roth is affected. Those two factors can be integrated, but that requires some complex tax planning.

5head
Posts: 8
Joined: Fri Jun 16, 2017 10:49 am

Re: Seeking 2017 IRA contribution clarification

Post by 5head » Mon Jun 19, 2017 1:29 pm

Hi all –

Thank you for the input.

My MAGI appears to be above $118k.

My employer may send me to a country that does not have a tax treaty with the US but I don’t know when this will occur (if at all for this year) and my contract and salary will be changed to reflect the various benefit changes.

The tax planning is a challenge.

I’m thinking that I will wait to see if I will relocate this year. At the end of 2017, then I should be able to determine if I can contribute fully (5,500) to my traditional IRA without having additional tax penalties (6% excess contribution)

Do you think this is the safest and simplest solution? Will I be losing more money waiting?

5head

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flamesabers
Posts: 1063
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: Seeking 2017 IRA contribution clarification

Post by flamesabers » Mon Jun 19, 2017 1:33 pm

5head wrote:Hi all –

Thank you for the input.

My MAGI appears to be above $118k.

My employer may send me to a country that does not have a tax treaty with the US but I don’t know when this will occur (if at all for this year) and my contract and salary will be changed to reflect the various benefit changes.

The tax planning is a challenge.

I’m thinking that I will wait to see if I will relocate this year. At the end of 2017, then I should be able to determine if I can contribute fully (5,500) to my traditional IRA without having additional tax penalties (6% excess contribution)

Do you think this is the safest and simplest solution? Will I be losing more money waiting?

5head


Assuming you don't have any other traditional IRAs, why don't you do a backdoor Roth right now?

rkhusky
Posts: 4083
Joined: Thu Aug 18, 2011 8:09 pm

Re: Seeking 2017 IRA contribution clarification

Post by rkhusky » Mon Jun 19, 2017 2:30 pm

Backdoor Roth 2-Step: Contribute to Traditional IRA. Convert to Roth IRA the next day*. Do not deduct Traditional contribution on tax form. File Form 8806.

*Make sure you don't have any other Traditional IRA's, since they will cause problems.

5head
Posts: 8
Joined: Fri Jun 16, 2017 10:49 am

Re: Seeking 2017 IRA contribution clarification

Post by 5head » Mon Jun 19, 2017 4:21 pm

Hi -

I do have a Roth IRA and a traditional IRA. I have not contributed for 2017.
If I understand correctly, I can NOT do a backdoor Roth IRA.

Thanks!
5head

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FiveK
Posts: 2589
Joined: Sun Mar 16, 2014 2:43 pm

Re: Seeking 2017 IRA contribution clarification

Post by FiveK » Mon Jun 19, 2017 4:31 pm

5head wrote:I do have a Roth IRA and a traditional IRA. I have not contributed for 2017.
If I understand correctly, I can NOT do a backdoor Roth IRA.

You can do a backdoor Roth. Whether you should do one is another question, the answer to which depends in part on the size of your current tIRA vs. the amount you want to shelter in the backdoor Roth. See Backdoor Roth IRA - Bogleheads for more.

See also IRA Deduction Limits for the exact limits.

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