Lost Job, Need Advice on Next Move(s)

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guwop
Posts: 67
Joined: Thu Mar 10, 2011 6:42 pm

Lost Job, Need Advice on Next Move(s)

Post by guwop » Mon Oct 15, 2018 10:40 am

I got laid off this past Friday. Luckily we have enough funds to cover several months worth of expenses.

Some quick points:
1. I will be receiving a lump sum severance.
2. I am eligible to file for unemployment (per my employer)
3. I will be added to my wife's health insurance (as a qualifying event)

Questions I have:
1. I'd like to use a portion of my severance to max out my Roth IRA contribution for 2018. Will I be eligible to contribute to a Roth IRA in 2019 if I am still receiving unemployment payments (taxable income?) in Jan 2019?
2. If the answer to the above is NO, can I roll my 401k into a IRA, then convert to a Roth IRA in January 2019 in order to generate a "taxable income" event, which by then would allow me to contribute to a 2019 Roth IRA?
3. If I am still unemployed in January 2019, will I have to pay any taxes on the 401k to Roth IRA conversion, since my income would essentially be at or close to 0?

TIA

tenkuky
Posts: 567
Joined: Sun Dec 14, 2014 4:28 pm

Re: Lost Job, Need Advice on Next Move(s)

Post by tenkuky » Mon Oct 15, 2018 10:45 am

Sorry to hear about your situation.
1. Unemployment compensation does not count as earned income for IRA contribution purposes. So unless you have earned income in all of 2019, you couldn't. Wait and see how it shakes out as you look for another job.
As long as you went above the $5500 earned income in 2018, you could max out the Roth for this year.
2. I don't believe a roth conversion qualifies as earned income either but will stand corrected if more experience boarders differ.

staythecourse
Posts: 6113
Joined: Mon Jan 03, 2011 9:40 am

Re: Lost Job, Need Advice on Next Move(s)

Post by staythecourse » Mon Oct 15, 2018 10:48 am

My advice... Keep money liquid. Don't worry about doing IRA anything until you get another job. Sometimes it is 1 day and sometimes not. So right now liquidity is your friend.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

KlangFool
Posts: 10394
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lost Job, Need Advice on Next Move(s)

Post by KlangFool » Mon Oct 15, 2018 10:51 am

guwop wrote:
Mon Oct 15, 2018 10:40 am
I got laid off this past Friday. Luckily we have enough funds to cover several months worth of expenses.

Some quick points:
1. I will be receiving a lump sum severance.
2. I am eligible to file for unemployment (per my employer)
3. I will be added to my wife's health insurance (as a qualifying event)

Questions I have:
1. I'd like to use a portion of my severance to max out my Roth IRA contribution for 2018. Will I be eligible to contribute to a Roth IRA in 2019 if I am still receiving unemployment payments (taxable income?) in Jan 2019?
2. If the answer to the above is NO, can I roll my 401k into a IRA, then convert to a Roth IRA in January 2019 in order to generate a "taxable income" event, which by then would allow me to contribute to a 2019 Roth IRA?
guwop,

You are married. So, as long as you filed jointly, you could use your wife's earned income to qualify you for Roth IRA contribution. And, vice versa.

<<2. If the answer to the above is NO, can I roll my 401k into a IRA, then convert to a Roth IRA in January 2019 in order to generate a "taxable income" event, which by then would allow me to contribute to a 2019 Roth IRA?>>

This does not work. It is not earned income. You need earned income for Roth IRA contribution.

KlangFool

KlangFool
Posts: 10394
Joined: Sat Oct 11, 2008 12:35 pm

Re: Lost Job, Need Advice on Next Move(s)

Post by KlangFool » Mon Oct 15, 2018 10:52 am

staythecourse wrote:
Mon Oct 15, 2018 10:48 am
My advice... Keep money liquid. Don't worry about doing IRA anything until you get another job. Sometimes it is 1 day and sometimes not. So right now liquidity is your friend.

Good luck.
+1.

OP,

What if your unemployment lasted 1 year or longer?

KlangFool

tenkuky
Posts: 567
Joined: Sun Dec 14, 2014 4:28 pm

Re: Lost Job, Need Advice on Next Move(s)

Post by tenkuky » Mon Oct 15, 2018 10:52 am

Ha, KlangFool is right, I forgot about spousal qualification for Roth.
But as another boarder pointed out, don't try and contribute or do anything in January.
Stay liquid and figure out your job prospects.
You have till April 2020 to contribute to your 2019 Roth.

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