Roth IRA contribution for MFS
Ok, this might be a bit more academic than real-world, but….
….what happens if someone who is over 50, is filing married filing separately, has $5,000 of earned income and a MAGI of $5,000. What is the maximum they can contribute to their Roth for the year?
Would it be 50% of $6,000 = $3,000, or would it be the earned income of $5,000, with a max $3,000 going to the Roth and the additional $2,000 having to go to a traditional IRA? (I doubt its the latter, as if they are >70.5, they couldn’t contribute to their TIRA)
Or would it be 50% of the lesser of earned income or $6,000, which in this case would be a max contribution of $2,500?
Thanks
BruceM
Permalink Submitted by mk foss on Wed, 2010-06-23 20:58
A married person filing a separate return cannot make a full Roth contribution. They’d be allowed a partial one if their Modified Adjusted Gross Income is less than $10,000.
Permalink Submitted by Alan Spross on Wed, 2010-06-23 22:10
Bruce,
$2,500 contribution if lived with spouse at any time during the year; $5,000 if lived separately all year.
The key variable is that the MAGI reduction applies to the contribution the taxpayer COULD HAVE made without the MAGI reductions. In this case that contribution would have been 5k (earned income). The conclusion is that the catchup contribution will not increase the allowed contribution if earned income is less than the catch up contribution limit.
If you want to trace these findings per Pub 590, you would first go to p 58 (How Much can be contributed). This is where it shows the lesser of earned income or the statutory limit of 6k if age 50. Then, go to Table 2-1 to determine IF a MAGI limit is further applied to the prior result). Any MAGI % reduction is then applied to that prior amount of 5k in this case.
Permalink Submitted by BruceM on Thu, 2010-06-24 05:24
Alan
Thats as I thought.
Thanks
BruceM