Please Help! Income limit on Roth
I would appreciate help with my own personal Roth IRA, please. I have contributed to a Roth IRA for the last several years and I automatically have money taken out of my bank account each month to contribute to the account.
I file Married/Joint and this year we made more than enough money for me to contribute to a Roth. How will this affect my taxes this year? Should I stop contributing to this account and open a Traditional IRA while we exceed th income limit?
I will certainly appreciate help and thank you in advance.
Sincerely,
Matt Collins
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-08 23:37
I assume “this year” refers to the year you are preparing your tax return for, ie 2016. You first need to determine exactly what your modified AGI is for 2016, because your max contribution phases out over a 10,000 range. Then you need to determine how much was contributed for 2016, as I expect that in January your contributions were changed to apply to 2017. Once you know the amount of your 2016 excess contributions, you can either request a return of your 2016 excess including any earnings which will be taxable on your 2016 return and subject to 10% penalty OR you can recharacterize the Roth contributions as TIRA contributions. However, you probably cannot deduct the TIRA contribution and would have to report them as non deductible on Form 8606 with your 2016 return. Did your spouse also make Roth contributions, and which of you already has a pre tax TIRA account?
Permalink Submitted by Matthew Collins on Thu, 2017-03-09 07:18
Hello Alan, I really appreciate you helping me with this information. You are correct with assuming I am inquiring about 2016 preparation. I had a feeling recharacterization was the route I needed to take. My wife doesn’t have an IRA at all. She gets a pension and contributes in an IUL.Thanks again for your help! Enjoy your week. Sincerely,Matt Collins
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-09 17:41
Your wife could recharacterize the Roth contribution as a TIRA contribution and then convert it back to a Roth IRA. This process is referred to as a back door Roth contribution. However, if you do have pre tax amounts in an IRA account, then your own conversion would be taxable. If that is the case, you might remove your excess contribution while your wife might recharacterize hers and convert back to Roth. If you decide to remove your excess contribution you should do it ASAP because the earnings that come out with it will be taxable on your 2016 return, and you probably want to complete that return soon. Removal should not take more than perhaps a week. The amount you receive that is earnings will be the excess of that amount over the amount of your excess contribution.