Roth IRA Contribution?
I have a client who wants to make Roth IRA contributions this year and has a 40K base salary. Through commissions and bonus he might end up around 120K-125K for 2015. Based on the income limits below, how do we plan contributions? Do we max out at $5,500 (younger than 50) and make adjustments based on how his 2015 income ends up? If he ends up only being eligible for a partial contribution how do make adjustments?
•Less than $116,000 — full contribution
•$116,000–$130,999 — partial contribution
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2015-03-16 20:43
Client can either make the contribution now and then remove any amount that turns out to be an excess contribution, or can wait until his modified AGI is known a year from now and then make the exact allowed contribution. Another way to avoid the income phaseout range if client does NOT have any non Roth IRA balance is to just make a non deductible TIRA contribution and then immediately thereafter convert it to a Roth IRA. He still ends up with a Roth contribution, but it takes two steps to get there and a little extra tax reporting. This is referred to as a “back door Roth” contribution. It eliminates the income requirement because there is no income requirement to make a non deductible TIRA contribution. However, if he has a rollover IRA, SEP IRA or other non Roth IRA balance, the conversion will be mostly taxable.
Permalink Submitted by Curtis Sanders on Mon, 2015-03-16 22:17
Thank you for your response.