Roth Question
Couple filing joint has an AGI of $165,000. Wife has access to a company sponsored 401K plan but does not participate. Can she contribute to a Roth IRA?
Couple filing joint has an AGI of $165,000. Wife has access to a company sponsored 401K plan but does not participate. Can she contribute to a Roth IRA?
Permalink Submitted by Alan Spross on Sat, 2010-01-23 19:24
You must determine the amount of joint modified AGI (MAGI), which has both additions and subtractions from the Form 1040 AGI amount. Once you get that figure, the ability for either spouse to make a Roth contribution hits the phase out range at 166,000 and is totally phased out at 176,000 MAGI. If the joint MAGI ends up in the phaseout range, a partial Roth contribution can be made.
The 401k participation is not a factor other than the amount deferred can reduce the MAGI and therefore increase the chance of being able to make the Roth contribution.
And if they cannot contribute to a Roth IRA, they can made non deductible traditional IRA contributions and then convert them to a Roth IRA. The tax for that conversion is subject to pro rate rules using the % of basis vrs the total values as the tax free portion of the conversion.
Permalink Submitted by mk foss on Mon, 2010-01-25 00:18
Be sure to check Form W-2 in connection with the 401k. If an employee can participate and does not, they are often treated as participating with a zero deferral percentage. That would cause the “retirement plan” box to be checked on Form W-2 and would lead to correspondence from IRS if an IRA deduction is claimed. If you can make a Roth contribution because of your income level, the “retirement plan” box isn’t relevant.