Roth IRA contribution question re: income limits

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Topic Author
azanon
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Joined: Mon Nov 07, 2011 10:34 am

Roth IRA contribution question re: income limits

Post by azanon »

I'm getting very close to hitting the income limits on being able to contribute to a Roth IRA, but unfortunately my (our) income is variable due to my wife's business. So my question is, should I just go ahead and make a regular Roth contribution and cross my fingers I don't hit the limit (and undo the contribution if I did), or should I just do a backdoor Roth so I'm already covered just in case I go over the limit? Which is the lesser of the evils? Forced to guess, I'd say I have at least a 75% chance I won't go over the limit, but I just can't be sure cause I'm so close to those income limits, and my wife's business is picking up.
tashnewbie
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Re: Roth IRA contribution question re: income limits

Post by tashnewbie »

If you don't have any pretax IRAs (SIMPLE, SEP, Traditional, Rollover), and you think you'll be near, in, or over the phase out limit for contributing to Roth IRA ($198-208k MAGI for MFJ in 2021), then go ahead and do the backdoor Roth. Nothing prevents anyone from doing the backdoor, even if they can use the front door.

See: Backdoor Roth
Topic Author
azanon
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Re: Roth IRA contribution question re: income limits

Post by azanon »

The only pre-tax I/we have is my TSP (~ Federal version of a 401(k))
02nz
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Re: Roth IRA contribution question re: income limits

Post by 02nz »

As noted you could do the backdoor Roth now. Or you could wait until tax filing season next year (you can make the contribution for 2021 until April 15, 2022) to see if you really need to do the backdoor, if below the phaseout range then just do the regular Roth IRA contribution then.

I think it comes down to whether you think your income will go over the limit in the future. If so, then you might as well get familiarized with the backdoor Roth now. But if this is only because of a one-time spike in income, then perhaps holding off is worthwhile.
Last edited by 02nz on Wed Jan 13, 2021 10:42 am, edited 1 time in total.
Topic Author
azanon
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Re: Roth IRA contribution question re: income limits

Post by azanon »

02nz wrote: Wed Jan 13, 2021 10:39 am As noted you could do the backdoor Roth now. Or you could wait until tax filing season next year (you can make the contribution for 2021 until April 15, 2022) to see if you really need to do the backdoor, if below the phaseout range then just do the regular Roth IRA contribution then.
Hmm, ok so I can do both types of Roth contribution fundings as long as I do it by April 15.... That has me tempted just to wait because ideally I'd rather not use the backdoor method if I don't really have to. I'm not terribly concerned about the delay in funding the Roths as long as they're eventually maxed.
02nz
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Re: Roth IRA contribution question re: income limits

Post by 02nz »

azanon wrote: Wed Jan 13, 2021 10:41 am
02nz wrote: Wed Jan 13, 2021 10:39 am As noted you could do the backdoor Roth now. Or you could wait until tax filing season next year (you can make the contribution for 2021 until April 15, 2022) to see if you really need to do the backdoor, if below the phaseout range then just do the regular Roth IRA contribution then.
Hmm, ok so I can do both types of Roth contribution fundings as long as I do it by April 15.... That has me tempted just to wait because ideally I'd rather not use the backdoor method if I don't really have to. I'm not terribly concerned about the delay in funding the Roths as long as they're eventually maxed.
Well the IRS doesn't consider it two "types" of Roth IRAs. You always have until tax filing deadline the following calendar year to make contributions to an IRA, whether Roth or traditional (and in the latter case, whether deductible or not).
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azanon
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Re: Roth IRA contribution question re: income limits

Post by azanon »

02nz wrote: Wed Jan 13, 2021 10:44 am
azanon wrote: Wed Jan 13, 2021 10:41 am
02nz wrote: Wed Jan 13, 2021 10:39 am As noted you could do the backdoor Roth now. Or you could wait until tax filing season next year (you can make the contribution for 2021 until April 15, 2022) to see if you really need to do the backdoor, if below the phaseout range then just do the regular Roth IRA contribution then.
Hmm, ok so I can do both types of Roth contribution fundings as long as I do it by April 15.... That has me tempted just to wait because ideally I'd rather not use the backdoor method if I don't really have to. I'm not terribly concerned about the delay in funding the Roths as long as they're eventually maxed.
Well the IRS doesn't consider it two "types" of Roth IRAs. You always have until tax filing deadline the following calendar year to make contributions to an IRA, whether Roth or traditional (and in the latter case, whether deductible or not).
Ok, but if I understand it right and wait until the following year to make a non-deductible traditional IRA contribution, I have to report the contribution on that year's tax return, but wait until the following year to report the conversion of that same IRA to a Roth even though I did it, say, a few days later?

Also, when I convert to a Roth, I take it I can have those monies go into the existing Roth accounts I already have, or will I be doomed to have/maintain a separate Roth IRA strictly for Roth conversions?
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Eagle33
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Re: Roth IRA contribution question re: income limits

Post by Eagle33 »

azanon wrote: Wed Jan 13, 2021 10:54 am Also, when I convert to a Roth, I take it I can have those monies go into the existing Roth accounts I already have, or will I be doomed to have/maintain a separate Roth IRA strictly for Roth conversions?
No need for a separate Roth IRA just for conversions. One for both contributions and conversions is okay.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
Topic Author
azanon
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Re: Roth IRA contribution question re: income limits

Post by azanon »

Eagle33 wrote: Wed Jan 13, 2021 9:23 pm
azanon wrote: Wed Jan 13, 2021 10:54 am Also, when I convert to a Roth, I take it I can have those monies go into the existing Roth accounts I already have, or will I be doomed to have/maintain a separate Roth IRA strictly for Roth conversions?
No need for a separate Roth IRA just for conversions. One for both contributions and conversions is okay.
Thanks!
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