[How do I know if I am eligible for an IRA deduction?]

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Blandrew
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[How do I know if I am eligible for an IRA deduction?]

Post by Blandrew » Fri Mar 15, 2019 10:23 pm

[Moved into a new thread from: Traditional vs Roth IRA --admin LadyGeek]

Noob question here, how does one know if they are eligible for an IRA deduction if they don't know their MAGI until the year is over? We are right on the edge of the married limit, is the best option to wait until the year is over and see what our MAGI is and make a 2019 contribution next March if were below the limit?

lakpr
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Re: [How do I know if I am eligible for an IRA deduction?]

Post by lakpr » Sat Mar 16, 2019 10:10 am

Blandrew wrote:
Fri Mar 15, 2019 10:23 pm
Noob question here, how does one know if they are eligible for an IRA deduction if they don't know their MAGI until the year is over? We are right on the edge of the married limit, is the best option to wait until the year is over and see what our MAGI is and make a 2019 contribution next March if were below the limit?
There are three ways you can skin this cat.
1. Yes, wait until March 2020 to make the IRA contribution for 2019
2. Accept that your IRA is not going to be deductible, contribute to a Roth IRA which has higher threshold
3. Do the Backdoor Roth (contribute to a non-deductible traditional IRA, convert to Roth two days later)

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grabiner
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Re: [How do I know if I am eligible for an IRA deduction?]

Post by grabiner » Sat Mar 16, 2019 10:36 am

There is one other option. Contribute to a Roth IRA, then recharacterize the contribution to a traditional IRA if appropriate. This allows you to treat the contribution as if it had been made to the traditional IRA in the first place; earnings will move to the traditional IRA with the contribution, although you can only deduct the contribution.

The new tax laws disallowed recharacterization of a conversion to a Roth IRA, but they still allow recharacterization of a contribution. (And this is necessary, for a version of your situation; you might contribute to a Roth IRA and then have enough income that you are over the contribution limit.)
Wiki David Grabiner

DrGoogle2017
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Re: [How do I know if I am eligible for an IRA deduction?]

Post by DrGoogle2017 » Sat Mar 16, 2019 11:31 pm

Best to do nondeductible and then convert to Roth right away. My kid just told me she won’t qualify next year, by doing tax this year, that’s how she knows.

Topic Author
Blandrew
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Re: [How do I know if I am eligible for an IRA deduction?]

Post by Blandrew » Sun Mar 17, 2019 5:53 pm

lakpr wrote:
Sat Mar 16, 2019 10:10 am
Blandrew wrote:
Fri Mar 15, 2019 10:23 pm
Noob question here, how does one know if they are eligible for an IRA deduction if they don't know their MAGI until the year is over? We are right on the edge of the married limit, is the best option to wait until the year is over and see what our MAGI is and make a 2019 contribution next March if were below the limit?
There are three ways you can skin this cat.
1. Yes, wait until March 2020 to make the IRA contribution for 2019
2. Accept that your IRA is not going to be deductible, contribute to a Roth IRA which has higher threshold
3. Do the Backdoor Roth (contribute to a non-deductible traditional IRA, convert to Roth two days later)
Just to be clear, the only way #3 would apply to me would be if I was afraid of going over the Roth income limit, correct? If im well below that limit would there be another reason to do the Backdoor Roth?

Topic Author
Blandrew
Posts: 26
Joined: Fri Mar 15, 2019 10:09 pm

Re: [How do I know if I am eligible for an IRA deduction?]

Post by Blandrew » Sun Mar 17, 2019 5:57 pm

grabiner wrote:
Sat Mar 16, 2019 10:36 am
There is one other option. Contribute to a Roth IRA, then recharacterize the contribution to a traditional IRA if appropriate. This allows you to treat the contribution as if it had been made to the traditional IRA in the first place; earnings will move to the traditional IRA with the contribution, although you can only deduct the contribution.

The new tax laws disallowed recharacterization of a conversion to a Roth IRA, but they still allow recharacterization of a contribution. (And this is necessary, for a version of your situation; you might contribute to a Roth IRA and then have enough income that you are over the contribution limit.)
Thank you for the info, I will look into how to do this.

lakpr
Posts: 4007
Joined: Fri Mar 18, 2011 9:59 am

Re: [How do I know if I am eligible for an IRA deduction?]

Post by lakpr » Sun Mar 17, 2019 6:17 pm

Blandrew wrote:
Sun Mar 17, 2019 5:53 pm
lakpr wrote:
Sat Mar 16, 2019 10:10 am
Blandrew wrote:
Fri Mar 15, 2019 10:23 pm
Noob question here, how does one know if they are eligible for an IRA deduction if they don't know their MAGI until the year is over? We are right on the edge of the married limit, is the best option to wait until the year is over and see what our MAGI is and make a 2019 contribution next March if were below the limit?
There are three ways you can skin this cat.
1. Yes, wait until March 2020 to make the IRA contribution for 2019
2. Accept that your IRA is not going to be deductible, contribute to a Roth IRA which has higher threshold
3. Do the Backdoor Roth (contribute to a non-deductible traditional IRA, convert to Roth two days later)
Just to be clear, the only way #3 would apply to me would be if I was afraid of going over the Roth income limit, correct? If im well below that limit would there be another reason to do the Backdoor Roth?
Correct. If you know you will be under the limit for contributing directly to the Roth IRA, use that instead

28fe6
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Re: [How do I know if I am eligible for an IRA deduction?]

Post by 28fe6 » Sun Mar 17, 2019 8:11 pm

Last year I contributed to Traditional, but then when I did my taxes I turned out to be in the IRA deduction phase-out range. I recharacterized my whole IRA to Roth. I am still contributing to Traditional via regular automatic contributions, so I will just plan on recharacterizing again next year if needed. It's a quick process.

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