Roth contribution amount
I retired this year in Feb. and my gross pay on my W2 is $12597.30. How do I determine how much I can contribute to my Roth IRA and to my wife’s as well?
I retired this year in Feb. and my gross pay on my W2 is $12597.30. How do I determine how much I can contribute to my Roth IRA and to my wife’s as well?
Permalink Submitted by mk foss on Wed, 2011-07-06 21:57
Roth contributions are based on gross salary and not determined by a percentage. In order to contributie the $6k maximum (assuming you’re over 50), you need gross earnings of $6k. To contribute for your wife, you need an additional $5k for the maximum and $1k for the “catch up” for being over 50.
Gross pay is enough to contribute for both of you. By gross pay, i’m assuming you mean “federal taxable pay” – if the gross was determined before a 401k or other pre-tax deduction, you may have a lower taxable amount to support the Roth contributions.
Permalink Submitted by maurice collins on Wed, 2011-07-06 22:22
on my final pay stub my gross year to date is 12597… i put a total of 480.55 in the 401k (tsp…tax deferred) and my health ins premium total was 430.90 which was not taxable but also part of the gross….no other deferred or non taxable income applies….i put 6k in my wifes roth and 6k in mine…hers was spousal contribution and she had no income at all in 2010……..i would like to know if the 401k contribution and health premiums both count in part of the gross….we are both over 50….i hope i m clear on this and can add any info you may need…from what mgt4cpa states it appears i m short 314.15 to get to the 12k threshhold…if so how do i rectify this any any penalties?
Permalink Submitted by Alan Spross on Thu, 2011-07-07 00:15
You will have to subtract out any 401k contributions, pre tax health insurance premiums, FSA contributions and perhaps some other pre tax fringe benefits. What you are trying to do is determine what will end up in Box 1 of your W-2 next January because with no other earned income, that will be your limit for IRA contributions for both of you. Since pay check stubs are not standardized, you might want to call HR to clarify any questions as to what is pre tax and what is not.
If your earned income is under 12k, you will have to remove the amount of excess contributions and associated earnings. This is very easy and you have plenty of time. You can do it early next year right after you get your W-2. Maybe you will get your W-2 much sooner, you might ask about that as well.
One option is to only contribute the amounts you are totally sure qualify at this time, then contribute the rest after you know your max amounts.
Permalink Submitted by maurice collins on Thu, 2011-07-07 12:33
great info here…ok…on these roth contributions i made for tax year 2011…..i have it figured i put 690 to much into it…would it be prudent to take that out now or just wait till next tax filing….probably not a big issue either way….earned income was 11310 after all 401k contribution,fsa and health ins premiums(pre tax)…..do it now or just wait…thank you so much…..
Permalink Submitted by Alan Spross on Thu, 2011-07-07 18:35
Either way, because the implications are minor. Earnings on the excess amount will be taxable when returned, but not penalized unless you are under 59.5. If you correct the excess and put that money in a taxable account, you will also be taxed on the earnings at some point.
Perhaps if you will be over 59.5 when you correct the excess amount next spring, you should wait until then since there will be no early withdrawal penalty on the earnings. But if you correct the amount you think is excess now, and are incorrect, you can still makeup the allowed contribution up to next 4/15. And if you are still over the allowed contribution after you get the W-2, just ask the custodian for another corrective distribution. You are not limited to only one such corrective distribution each year.
And if you or your wife does any part time work the rest of the year, you would qualify for the full amount.
So the timing is not a big issue either way. Just be sure the contribution is corrected before the extended due date passes on 10/15/2012.