Help with Roth IRA contribution for CY2018

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gazelle1991
Posts: 63
Joined: Thu Aug 03, 2017 11:20 am

Help with Roth IRA contribution for CY2018

Post by gazelle1991 » Tue Mar 13, 2018 5:44 pm

Hi all,

Appreciate any inputs you could provide on my situation!

I just filed my 2017 taxes and my income came in just below the low end limit for the ROTH IRA contribution. In 2018, I expect my income to go up a bit and get over the 120K phasing out limit. To avoid excess contribution headache, should I stop my auto monthly contribution right now, put the remaining contribution (5500 - YTD contribution) into a Traditional IRA and roll over?

Additionally, is there a good time to do the roll over? Should I contribute to the Traditional IRA now, then roll over right away to minimize taxes on earnings or since there's a chance my income may be below the 120K limit, keep the money in an individual taxable account and contribute at year end when i know what my income actually is?

The third option is to continue to do monthly contribution into my Roth IRA and deal with excess contribution at year end. Is it a lot of hassle to back out excess contribution?

Thanks in advance!
Last edited by gazelle1991 on Wed Mar 14, 2018 9:33 am, edited 1 time in total.

Alan S.
Posts: 7863
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Help with Roth IRA contribution for CY2018

Post by Alan S. » Tue Mar 13, 2018 7:04 pm

If you do not have any non Roth IRAs, the best solution is to take the following actions:

1) Change the auto monthly contributions to TIRA contributions.
2) Once that is confirmed, recharacterize your 2018 Roth contribution amount to date as TIRA contributions.
3) After your last contribution is made, confirm that the total contributions made is not over the limit. Then convert to Roth. You will owe taxes on the amount your conversion exceeds 5500.

Option: Once your contributions total about 50% of 5500, convert the balance to Roth. Then convert the rest after your last contribution. Doing two conversions will limit the buildup of earnings that would be taxable and result in more earnings generated in the Roth rather than in the TIRA before you convert.

If you contributions have lost value, do not convert until there are gains. No need to convert until you have at least some gains.

If you DO have present non Roth IRA values, please advise the amount.

gazelle1991
Posts: 63
Joined: Thu Aug 03, 2017 11:20 am

Re: Help with Roth IRA contribution for CY2018

Post by gazelle1991 » Wed Mar 14, 2018 9:42 am

I do not have any non Roth IRA values. I think i will contribute the remainder of my IRA contribution to a market fund in my newly opened TIRA account now, then roll that over to ROTH ASAP and then buy funds with that money in ROTH. The value I see there is:
1) less paperwork, only having to fill out 1 form for the conversion
2) Although i won't have the cost basis spreading out over the course of the entire year, I will have the money sitting in Roth early.

Is there are reason why you suggested to only convert when there is a gain? If I put in 5500 into a TIRA and that went down to 5000. Isn't that 5000 the same sitting in TIRA or sitting in ROTH?

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