Roth contributions
Client is working and puts maximum contributions in his 401k approx 16000. Can he still purchase a Roth for the 60000 (he is 57)? If not in 2009 (135,000 income) then in 2010? I am not sure. Also wife works makes 100,000 contributes 10000 to 401k! Same question as above as to allowable Roth contributions in addition to 401K deposits? If she reduces her contribution in 2010 to $4000 (equals company match) could she put the addtional in Roth?
Permalink Submitted by Alan Spross on Sat, 2009-10-03 18:48
Income limits for regular Roth IRA contributions will not change along with the 2010 conversion rules. Therefore, if the 2010 income limits remain the same as 2009 (Phaseout starts at 166,000 joint MAGI and contribution is totally eliminated at 176,000). With their income at 235,000, there would be no regular Roth contribution possible for either of them. Note that if they are only over the income limit by a small amount, increasing their 401k contributions could reduce their MAGI enough to generate a regular Roth contribution or a partial contribution. MAGI can only be reduced by taking capital losses or certain other losses from business income schedules.
Reducing a 401k contribution will only increase MAGI and make it less likely to come in under the limit, whereas increasing the contribution may help reduce the MAGI.
However, even if they cannot make a regular Roth contribution, as long as they have earned income they can always make a non deductible TIRA contribution and file Form 8606 to report it. Starting in 2010, anyone can convert to a Roth, so these non deductible TIRA contributions would give them IRA assets that could be converted. The portion allocated to non deductible contributions will not be taxable upon conversion. They may want to consider doing this, as the conversion will get this money into a Roth IRA starting next year. They also will have the two year deferral on reporting the portion of the conversion that is includible in income.