Confused about tIRA deduction limits for MFJ

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jmk
Posts: 335
Joined: Tue Nov 01, 2011 7:48 pm

Confused about tIRA deduction limits for MFJ

Post by jmk » Sat Feb 03, 2018 5:27 pm

I'm confused how the MAGI traditional IRA limits work for married jointly couples, both with work plans. I want to make sure I'm doing this year's taxes correctly.

I'm recharacterizing some of our 2017 Roth. Our MAGI this year was $103,491 so we can't deduct the whole amount. Do we figure the deduction-limit individually (each using the same $103,491 MAGI)? Does one person's iIRA deduction affect the other's deduction limit? (In other words, if DW left her whole amount as Roth, could I then deduct more with my own IRA, and vice versa?)
Last edited by jmk on Sat Feb 03, 2018 7:59 pm, edited 2 times in total.

Alan S.
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Location: Prescott, AZ

Re: Confused about tIRA deduction limits for MFJ

Post by Alan S. » Sat Feb 03, 2018 6:41 pm

Is one of you NOT a participant in a workplace retirement plan for 2017?

Any spouse who is NOT a participant can deduct their full contribution. Whether any spouse deducts their contribution or not does NOT change MAGI for purposes of the deduction.

Do your Roth contributions have large gains attributed to them?
When a Roth contribution with gains is recharacterized, the potentially tax free gains are transferred to a TIRA where they will eventually be taxed. Therefore, the larger the gain, the less beneficial it is to recharacterize a Roth contribution.

jmk
Posts: 335
Joined: Tue Nov 01, 2011 7:48 pm

Re: Confused about tIRA deduction limits for MFJ

Post by jmk » Sat Feb 03, 2018 7:01 pm

Alan S. wrote:
Sat Feb 03, 2018 6:41 pm
Is one of you NOT a participant in a workplace retirement plan for 2017?

Any spouse who is NOT a participant can deduct their full contribution. Whether any spouse deducts their contribution or not does NOT change MAGI for purposes of the deduction.
My apologies for forgetting to mention that both us have work plans. (Amended above.) Does that change your answer? When I run the Fidelity calculator it shows I can deduct up to $5050 and my wife can deduct up to $4270-- so given your answer that "whether any spouse deducts their contribution does not change the MAGI" I'm concluding we can as a family recharacterize (and deduct) $9320 if we wanted. Does this sound correct? For some reason I thought that the contribution to a tIRA got included in the MAGI-- so both spouse's tIRAs + our AGI had to be at the right level.
Do your Roth contributions have large gains attributed to them?
When a Roth contribution with gains is recharacterized, the potentially tax free gains are transferred to a TIRA where they will eventually be taxed. Therefore, the larger the gain, the less beneficial it is to recharacterize a Roth contribution.
We need to recharacterize only $3000 to bring us down to the 15% marginal level. But since we'll be at 12% in a few years during early retirement, recharacterizing more makes sense on its face. 3% is 3%.

kaneohe
Posts: 4780
Joined: Mon Sep 22, 2008 12:38 pm

Re: Confused about tIRA deduction limits for MFJ

Post by kaneohe » Sat Feb 03, 2018 11:16 pm

https://www.irs.gov/pub/irs-pdf/p590a.pdf You might want to check out the wksht on p.17 to see how the calculation goes. Unfortunately the link is for 2016 so you need to change the line 1 number to 119K. Since you both have retirement plans I don't see how you could get a different number for each person.

You might want to check out this calculator also https://www.schwab.com/public/schwab/in ... raditionalIt seemed to give the same answer for both spouses whether I put all the MAGI for one spouse or split it among the two.

jmk
Posts: 335
Joined: Tue Nov 01, 2011 7:48 pm

Re: Confused about tIRA deduction limits for MFJ

Post by jmk » Sun Feb 04, 2018 9:54 pm

kaneohe wrote:
Sat Feb 03, 2018 11:16 pm
Since you both have retirement plans I don't see how you could get a different number for each person.
You might want to check out this calculator also https://www.schwab.com/public/schwab/in ... raditionalIt seemed to give the same answer for both spouses whether I put all the MAGI for one spouse or split it among the two.
I'm older than 50, DW is younger. :)

j

kaneohe
Posts: 4780
Joined: Mon Sep 22, 2008 12:38 pm

Re: Confused about tIRA deduction limits for MFJ

Post by kaneohe » Sun Feb 04, 2018 11:00 pm

jmk wrote:
Sun Feb 04, 2018 9:54 pm
kaneohe wrote:
Sat Feb 03, 2018 11:16 pm
Since you both have retirement plans I don't see how you could get a different number for each person.
You might want to check out this calculator also https://www.schwab.com/public/schwab/in ... raditionalIt seemed to give the same answer for both spouses whether I put all the MAGI for one spouse or split it among the two.
I'm older than 50, DW is younger. :)

j
The Schwab calculator appears to use the same rule for each spouse but scaled by the age contribution factor (6500/5500). I don't see a way that you can use the spouse's deductibility amount if she doesn't use it herself.

jmk
Posts: 335
Joined: Tue Nov 01, 2011 7:48 pm

Re: Confused about tIRA deduction limits for MFJ

Post by jmk » Fri Feb 09, 2018 6:44 pm

kaneohe wrote:
Sun Feb 04, 2018 11:00 pm
jmk wrote:
Sun Feb 04, 2018 9:54 pm
kaneohe wrote:
Sat Feb 03, 2018 11:16 pm
Since you both have retirement plans I don't see how you could get a different number for each person.
You might want to check out this calculator also https://www.schwab.com/public/schwab/in ... raditionalIt seemed to give the same answer for both spouses whether I put all the MAGI for one spouse or split it among the two.
I'm older than 50, DW is younger. :)

j
The Schwab calculator appears to use the same rule for each spouse but scaled by the age contribution factor (6500/5500). I don't see a way that you can use the spouse's deductibility amount if she doesn't use it herself.
Thanks everyone this has been very helpful. I think I now "get it".

The snag I ran into with all this was unexpected: turns out in recharacterizing I'd have to break a high paying Roth CD, suffer 3 months early-withdrawal penalty, and then have the new lower interest rate on the recharacterized traditional IRA CD. So suddenly my easy decision is much harder and I have to weight the total cost of each option. The whole point of this was to keep me in the 15% bracket and postpone taxes till they'd be 10%; but that may not be worth it.

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