Confused – Roth IRA income limits
Can anyone clear this up for me.
Say there is an unmarried couple. They both make $90k salaries.
So in 2007, they both are able to make full contributions to their Roth IRAs that year. In 2008, they get married. Because of their combined income of $180k, they are unable to contribute to their Roths.
Is the $169k limit per individual or combined? If it is indeed the combined income, this seems like a tax-disadvantage for filing jointly.
As a follow on question: What is a good alternative for the Roth. Should the couple just contribute to a TIRA?
Thanks,
Tim
Permalink Submitted by Alan Spross on Sun, 2008-12-28 21:52
You are correct that they will not be eligible for regular Roth contributions once married. There is a marriage penalty included in the income limits because the married income limit is not double that of the single limit.
If even one of them is covered by a retirement plan at work, they will not be able to deduct a TIRA contribution either. However, if they make non deductible TIRA contributions, they will be eligible to convert their TIRA to a Roth in 2010, when the conversion income limit disappears. Taxation of that conversion depends on how much of their total TIRA balances are from non deductible contributions.
Permalink Submitted by charles lore on Tue, 2008-12-30 01:03
Another alternative to a Roth is Variable Universal Life. Money goes in after tax, can be invested in the market while being tax deferred, and can come out without tax. ( because it;s a loan against your cash value…. and the time at which you can do this varies depending on the product)
AND you get a death benefit unlike a Roth..
Of coarse this is not a qualified plan just a life insurance product but the biggest benefit is that you can put in much more than a Roth .. subject to the insurance companies limits that are a function of insurance rules and insurabiity..( You have to be insurable )
Permalink Submitted by Tim Bucktwo on Thu, 2009-01-01 00:30
Thanks for the replies, it is all very helpful information.
In some research (wish I had done this 1yr ago since my marriage wasn’t a shotgun wedding and was planned over a year in advance), it sounds like my wife and I both could have increased our 401k contributions for the 2008, which would lower our MAGI, thus allowing us to contribute to our Roth IRAs.
Is it true that the income limits on Roth IRAs will be removed by 2010 allowing anyone to contribute to a Roth?
Is it also true that at that time we’ll be able to convert our TIRAs back over to our Roth IRAs?
-Tim
Permalink Submitted by mk foss on Thu, 2009-01-01 00:35
You are partially correct. In 2010 they are removing the 100k AGI limit on conversions but they are not adjusting the AGI limit for contributions.
That’s why some are recommending that nondeductible contributions be made for 2008 forward that can be converted to a ROTH in 2010 or later.