Roth Filing Separately
My wife and I are filing separately because she has a student loan. Our objective is to put money into a Roth IRA. Since we cannot contribute to a Roth we were advised to put the money into a traditional IRA then roll it over. Our accounts are with Vanguard. We had Vanguard deduct money each month. from our bank account. However, we realized that it was going into the Roth. We are not sure if that is what we are supposed to be doing and when to do transfer the money out of the Roth.
Does the money have to be out of the Roth by December 31 or just before I file my taxes in 2022?
Should I be depositing the money into the TIRA and then roll it over – thus paying taxes on any gains?
Should I be depositing into the Roth like I did this year to avoid the taxes on gains and then transfer to the TIRA and then roll it back into the Roth.
Or I could hold off on any contribution until December. Contribute to the TIRA and the roll it over to the Roth. But again, I am not sure when that has to be done by.
Any help would be greatly appreciated.
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-30 23:03
Which spouses are covered by a workplace plan? Which spouses already have a TIRA balance? Contributions for 2021 can be recharacterized or removed up to your due date including extensions for your 2021 return. There are no 12/31 deadlines for the recommended corrective measures, so no time crunch right now. Please advise info, and stop the Roth contributions before they continue into 2022.
Permalink Submitted by Anthony Romano on Thu, 2021-12-30 23:35
We both have a workplace retirement and started an outside Vanguard account in 2019 so bothe of us have a TIRA with a small balance. We have the TIRA because started with a Roth but learned that we couldn’t have one due to filing separetly so we had to open a TIRA. The objective is to have a Roth and our worplace retirement when we retire. But it seems like its not so easy.
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-31 00:03
SInce you cannot deduct the TIRA contributions, and the balances are small, you could convert them with a modest tax bill, then do annual non deductible TIRA contributions and convert them. That said, the Build Back Better bill now in limbo included a provisions that would have eliminated the conversion of non deductible contributions starting in 2022. If the bill passes this year and the provision remains, it is not clear whether it would apply to 2022 conversions or not. You will have to monitor the progress of this bill and how the IRS plans to implement it with respect to effective dates. Concerned taxpayers need to convert by tomorrow to avoid these provisions on their current balances.
For your 2021 excess Roth contributions, you can recharacterize them by asking the custodian to recharacterize 2021 contributions as TIRA contributions. These contributions could then be reported on your 2021 separate returns as non deductible TIRA contributions, but as stated you still may not be able to convert them back to Roth IRAs depending on the outcome of the tax law negotiations. You have until 10/15/2022 to recharacterize your 2021 contributions if you either file your returns on time in April or file a timely extension by the tax due date.
Permalink Submitted by Anthony Romano on Fri, 2021-12-31 02:21
Thank you for the clear and concise reply. Happy New Year