Some More Roth Questions

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sparky123
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Joined: Mon Nov 20, 2017 9:14 am

Some More Roth Questions

Post by sparky123 » Tue Dec 03, 2019 11:18 am

I plan to retire in 2020. I will have maybe 20K in earned income that year. I may or may not cash in some taxable holdings, generate a lot of taxable capital gains, and buy a new house that year. I won't know if I am under the Roth income limits until the year is up.
1) So if I wait until 2021 to buy the 2020 Roth, can I do that even though I'll have no earned income in 2021?
2) What if I made say $20k in 2020 but $15k of that went to taxes and my 'take home' was less than $7k? Could I still put $7k into the Roth?

02nz
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Re: Some More Roth Questions

Post by 02nz » Tue Dec 03, 2019 11:30 am

1. Yes you can contribute for 2020 up to the tax filing deadline on April 15, 2021.

2. Net pay after taxes is irrelevant, the amount of your contribution is limited by your gross earned income. So if you have at least $7K of gross earned income in 2020, you can contribute the max (including the age-based catchup).

HomeStretch
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Re: Some More Roth Questions

Post by HomeStretch » Tue Dec 03, 2019 11:34 am

Do you have a 401k plan that allows Roth employee deferrals?

rivercrosser
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Re: Some More Roth Questions

Post by rivercrosser » Tue Dec 03, 2019 12:06 pm

Don't know your situation but I've been retired almost 3 years now. Wife is still working so the last two years I just wait till she's made enough and fund one Roth, then later the other after she's made enough more fund the other one. They don't care who makes the earned income or what account you fund your Roth's from.

Topic Author
sparky123
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Joined: Mon Nov 20, 2017 9:14 am

Re: Some More Roth Questions

Post by sparky123 » Tue Dec 03, 2019 2:24 pm

Do you have a 401k plan that allows Roth employee deferrals?

I do but it comes at the expense of regular 401k contributions. And I have an old IRA that I don't want to roll into the 401k so that greatly complicates the Roth 401k.

HomeStretch
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Re: Some More Roth Questions

Post by HomeStretch » Tue Dec 03, 2019 4:38 pm

sparky123 wrote:
Tue Dec 03, 2019 2:24 pm
Do you have a 401k plan that allows Roth employee deferrals?

I do but it comes at the expense of regular 401k contributions. And I have an old IRA that I don't want to roll into the 401k so that greatly complicates the Roth 401k.
I am not clear on how your old IRA complicates the Roth 401k.

If you will only have $20k of eligible compensation, you can make a combination of pretax and Roth employee 401k deferrals such that your W2 shows $7k of compensation that then allows you to make a $7k Roth IRA contribution. In effect, you can make total retirement contributions in excess of $20k.

Bruce T
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Re: Some More Roth Questions

Post by Bruce T » Tue Dec 03, 2019 4:47 pm

Not Roth related, but if you are retiring pre-Medicare age and counting on ACA marketplace insurance (perhaps you are COBRA-ing it in year 1), do consider the ACA premium tax credit MAGI income rules and levels, particularly re: LT cap gains and total family size and income.

Topic Author
sparky123
Posts: 23
Joined: Mon Nov 20, 2017 9:14 am

Re: Some More Roth Questions

Post by sparky123 » Wed Dec 04, 2019 7:08 pm

I am not clear on how your old IRA complicates the Roth 401k.
You are right, I was confused.

If you will only have $20k of eligible compensation, you can make a combination of pretax and Roth employee 401k deferrals such that your W2 shows $7k of compensation that then allows you to make a $7k Roth IRA contribution. In effect, you can make total retirement contributions in excess of $20k.
I will give this some thought. Thanks for the feedback. When I try to talk to people around me about these things, I get blank stares or they tell me what the EJ guy is offering.

Not Roth related, but if you are retiring pre-Medicare age and counting on ACA marketplace insurance (perhaps you are COBRA-ing it in year 1), do consider the ACA premium tax credit MAGI income rules and levels, particularly re: LT cap gains and total family size and income.
That is exactly what I planned. Work 4 months, COBRA till the end of the year or maybe the full 18 months, build up a large cash reserve, buy the big ticket items, then go to ACA.

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