Working until the end of January for Roth contribution

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Mickey7
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Working until the end of January for Roth contribution

Post by Mickey7 » Mon Sep 10, 2018 8:13 pm

I am starting to kick the wheels on the retirement spaceship and several lights are starting to blink on the screen. One of the lights concerns the possibility of only working through the month of January 2019 to be eligible to make a Roth contribution.

My monthly gross is around $8200 and the net is $4450. Of course the net is so much lower due to my monthly 403b contribution of $2000 with an additional $600 going to my teacher retirement (mandatory). Being over the age requirement will I be able to make the entire Roth contribution of over $6500 for the year or will I be limited to the $4450 amount? When going through the IRS website I could not definitively determine this.

I will address the other blinking lights at another time.


Thank you

Darth Xanadu
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Re: Working until the end of January for Roth contribution

Post by Darth Xanadu » Mon Sep 10, 2018 8:18 pm

I believe it is based on taxable compensation so I would presume that you'd have to back out the pre-tax contributions when determining your maximum limit.
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Mickey7
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Re: Working until the end of January for Roth contribution

Post by Mickey7 » Mon Sep 10, 2018 8:33 pm

So that would mean $4450 for my last Roth if January is my choice.

Darth Xanadu
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Re: Working until the end of January for Roth contribution

Post by Darth Xanadu » Mon Sep 10, 2018 8:37 pm

I would think that it's $8200 minus $2000 minus $600.
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MotoTrojan
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Re: Working until the end of January for Roth contribution

Post by MotoTrojan » Mon Sep 10, 2018 8:38 pm

Not sure above is right. Regardless I’d presume Roth is better than pretax here so maybe reduce the 403 contribution.

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Watty
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Re: Working until the end of January for Roth contribution

Post by Watty » Mon Sep 10, 2018 8:42 pm

Mickey7 wrote:
Mon Sep 10, 2018 8:33 pm
So that would mean $4450 for my last Roth if January is my choice.
Doing Roth conversions at your 2019 tax rate would be very similar.

If you have a Roth 401K which is available that would be another option that might work.

123
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Re: Working until the end of January for Roth contribution

Post by 123 » Mon Sep 10, 2018 8:46 pm

The limitation for Roth contribution for the year is your taxable compensation for the year (subject to the $5,500/$6,500 limits). Note that when you leave a particular job you often receive various accrued benefits, like unused vacation, that may increase your taxable compensation for the year the job ends.
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Spirit Rider
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Re: Working until the end of January for Roth contribution

Post by Spirit Rider » Mon Sep 10, 2018 8:52 pm

See Publication 590-A What Is Compensation? For a W-2 employee this is your W-2 Box 1 + Box 11 (if any). The $8200 is reduced by any pre-tax deductions (403b, pension, HSA, Section 125 employee benefits share, etc...). Income tax and FICA deductions do not reduce your compensation.

Note: If you have a Roth 403b option at your work. You could make Roth 403b contributions for one month and it would not prevent an $6500 Roth IRA contribution. If your employer allows a >= 75% 403b contribution, in three months you could max out the 2018 $19,000 403b contribution limit with ~$0 for a pay check and still make the $6500 maximum Roth IRA contribution for 2019.

HJG0989
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Re: Working until the end of January for Roth contribution

Post by HJG0989 » Mon Sep 10, 2018 9:00 pm

What 123,said. Will you get paid for any unused vacation or sick time?

Mickey7
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Re: Working until the end of January for Roth contribution

Post by Mickey7 » Mon Sep 10, 2018 9:50 pm

Unfortunately no. Under state law I could buy an extra year with 50 days, which I easily have, the amount owed would require over 18 years to break even. That would not be a favorable payback.

With regards to Spirit Rider's recommendation, that would be a part of a Plan B strategy in which I would work until the end of my contract in July (I am in education) to accrue the pension that included this year's pay raise. In this scenario I could keep with my current 403 b contribution and max out the end of my HSA contribution for 2018. (No HSA for 2019 - 6 month rule.) By working until the contract expires my Social Security would also incrementally increase (yes this includes the WEP) for an additional yearly increase by approximately $1800 a year over what it be for a January exit. The January exit would be for an additional year to the payout based on my last 3 years salaries, not including this year's.

Because I have been maxing out my HSA, Roth and 403b these last few years my TRS retirement along with Social Security will be greater than my current take home. It would be so even if I went out in January.

The July date has many positive dollar parts to it. I am trying to objectively weigh all options. However I think my thermometer is starting to pop out.

dknightd
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Re: Working until the end of January for Roth contribution

Post by dknightd » Mon Sep 10, 2018 9:59 pm

Honestly if tax on $6500 made a difference I think I'd have to work longer. Otherwise let the corks pop,

Mickey7
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Re: Working until the end of January for Roth contribution

Post by Mickey7 » Mon Sep 10, 2018 10:44 pm

Yes I know. Just trying to turn over all of the rocks.

Spirit Rider
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Re: Working until the end of January for Roth contribution

Post by Spirit Rider » Tue Sep 11, 2018 8:52 am

Is there no choice to work until the end of March?

That is all that is required to max out both Roth IRA and 403b unless there is % contribution limit < 75%.

Mickey7
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Re: Working until the end of January for Roth contribution

Post by Mickey7 » Tue Sep 11, 2018 6:54 pm

Thank you for your question. Yes I could target the end of March and follow your scenario as I could claim Social Security in January when I turn 67 and have an income of approximately of approximately $1300 per month. However while increasing my 403b, it would not increase my pension. If I were to forgo the January pension increase of both SS and TRS to around $65000 and waited until the end of my contract in July my combined pensions (SS and TRS) would be a tad over $67000, while simultaneously increasing my 403 contributions (yes I would increase monthly contributions as you noted) and fill my HSA to the 2018 limit as I mentioned in an earlier post. So in my mind the best targets are either January or July.

It becomes the OMY, or in this case, 7 more months issue.

anakinskywalker
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Re: Working until the end of January for Roth contribution

Post by anakinskywalker » Tue Sep 11, 2018 7:22 pm

Mickey7 wrote:
Mon Sep 10, 2018 9:50 pm
Unfortunately no. Under state law I could buy an extra year with 50 days, which I easily have, the amount owed would require over 18 years to break even. That would not be a favorable payback.

With regards to Spirit Rider's recommendation, that would be a part of a Plan B strategy in which I would work until the end of my contract in July (I am in education) to accrue the pension that included this year's pay raise. In this scenario I could keep with my current 403 b contribution and max out the end of my HSA contribution for 2018. (No HSA for 2019 - 6 month rule.) By working until the contract expires my Social Security would also incrementally increase (yes this includes the WEP) for an additional yearly increase by approximately $1800 a year over what it be for a January exit. The January exit would be for an additional year to the payout based on my last 3 years salaries, not including this year's.

Because I have been maxing out my HSA, Roth and 403b these last few years my TRS retirement along with Social Security will be greater than my current take home. It would be so even if I went out in January.

The July date has many positive dollar parts to it. I am trying to objectively weigh all options. However I think my thermometer is starting to pop out.
Sorry, I didn't get the part in bold. Would someone kindly mind explaining?

Anakin

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samsoes
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Re: Working until the end of January for Roth contribution

Post by samsoes » Tue Sep 11, 2018 7:36 pm

Mickey7 wrote:
Mon Sep 10, 2018 9:50 pm
Unfortunately no. Under state law I could buy an extra year with 50 days, which I easily have, the amount owed would require over 18 years to break even. That would not be a favorable payback.
A year would cost 50 days but would really cost 18 years?

Wait. What? :confused
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CnC
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Re: Working until the end of January for Roth contribution

Post by CnC » Tue Sep 11, 2018 7:42 pm

samsoes wrote:
Tue Sep 11, 2018 7:36 pm
Mickey7 wrote:
Mon Sep 10, 2018 9:50 pm
Unfortunately no. Under state law I could buy an extra year with 50 days, which I easily have, the amount owed would require over 18 years to break even. That would not be a favorable payback.
A year would cost 50 days but would really cost 18 years?

Wait. What? :confused
Likely he means he has the option to trade 50 days of pay for an extra year of pension.

That extra year would increase his pension by $X.xx it would take 18 years of $X.xx to equal 50 days of pay.


I'm a bit confused to what it has to do with sick time though.

Mickey7
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Re: Working until the end of January for Roth contribution

Post by Mickey7 » Tue Sep 11, 2018 7:48 pm

Thank you CnC, your description is better.

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triceratop
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Re: Working until the end of January for Roth contribution

Post by triceratop » Tue Sep 11, 2018 11:48 pm

Does it still make sense to make pre-tax contributions for a year where you will be retired? Do you expect your taxable income to be the same? It may not make sense to proceed as you otherwise would in a previous working year.
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mariezzz
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Re: Working until the end of January for Roth contribution

Post by mariezzz » Wed Sep 12, 2018 10:21 am

Pay attention to triceratop's post above, but as a note, there is no age limit at which Roth IRA contributions can be made.
https://www.irs.gov/retirement-plans/roth-iras

The answer to your OP is easily available online, and I'd suggest spending time reading so that you understand the relevant factors in depth. Earned income is what determines how much you can contribute to the Roth. (Any income that you contribute pre-tax to things like health insurance, other retirement options, would not count as earned income).
https://www.rothira.com/roth-ira-limits

ponyboy
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Re: Working until the end of January for Roth contribution

Post by ponyboy » Wed Sep 12, 2018 10:51 am

I guarantee if I was about to retire...the last thing that would be stopping me is a $4000 roth ira contribution. Its not like its a $4000 bonus...you're paying yourself.

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