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Started By
Message
What if your income exceeds the 105K for the Roth IRA?
Posted on 3/13/11 at 2:03 am
Posted on 3/13/11 at 2:03 am
Just started a Roth, but have a question.
I see that the max amount of money you can make is 105K.
Last year I made 103K.
This is really close to the limit.
I dont expect my pay this year to increase much, but we are only talking 2k and it would bring me over the 105K limit.
Lets say I have the full 5K invested in my roth, and end up making 107K for the year.
What happens next?
Does the goverement take the money out of the Roth and send me a check or fine me for using something im not qualified for?
I understand you can still do a limited Roth up to 120K, but what if I already paid the entire 5K only to later find out I went over the limit.
I see that the max amount of money you can make is 105K.
Last year I made 103K.
This is really close to the limit.
I dont expect my pay this year to increase much, but we are only talking 2k and it would bring me over the 105K limit.
Lets say I have the full 5K invested in my roth, and end up making 107K for the year.
What happens next?
Does the goverement take the money out of the Roth and send me a check or fine me for using something im not qualified for?
I understand you can still do a limited Roth up to 120K, but what if I already paid the entire 5K only to later find out I went over the limit.
4
Posted on 3/13/11 at 9:20 am to Baylor
I know a couple years back the limit was around 150k. I went over one year and still maxed out my ROTH IRA with no repercussions.
Posted on 3/13/11 at 10:44 am to Baylor
You can contribute $5,000 for the 2010 tax year until April 15th. (April 18th this year). If you made 103K last year, you're good on the full $5,000. You'll have to look into it more this time next year and see where your income stands.
Posted on 3/13/11 at 10:49 am to Baylor
Here's your limits for the 2011 tax year:
Single:
107,000- full contribution
107,000- 121,999- partial contribution
Married:
169,000- full contribution
169,000-178,999- partial contribution
Don't know if you're married or not, but even if your wife doesn't work, you are still allowed to contribute the full amount if your income doesn't exceed 169,000.
Single:
107,000- full contribution
107,000- 121,999- partial contribution
Married:
169,000- full contribution
169,000-178,999- partial contribution
Don't know if you're married or not, but even if your wife doesn't work, you are still allowed to contribute the full amount if your income doesn't exceed 169,000.
Posted on 3/13/11 at 11:55 am to adavis
quote:
Don't know if you're married or not, but even if your wife doesn't work, you are still allowed to contribute the full amount if your income doesn't exceed 169,000.
and could do a spousal IRA as well
Posted on 3/13/11 at 1:58 pm to ProjectP2294
quote:
and could do a spousal IRA as well
Yep, another $5,000. Do it if you've got it. $10,000 per year builds up quite nicely.
Posted on 3/13/11 at 3:11 pm to adavis
quote:
Here's your limits for the 2011 tax year:
Single:
107,000- full contribution
107,000- 121,999- partial contribution
Married:
169,000- full contribution
169,000-178,999- partial contribution
is that total income or taxable income? If you put a few thousand in a 401K is that counted against your limit?
Posted on 3/13/11 at 3:25 pm to TigerintheNO
I think it's AGI. If you're bumping up against that limit though you really just need to download the IRS pub and learn the ins and outs. It isn't that complicated and doesn't take a whole lot of time. Honestly everyone should do this.
Posted on 3/13/11 at 4:51 pm to TigerintheNO
quote:
taxable income?
has to be taxable income. otherwise I would have been busted. but everything was under my S-corp, so i had a bunch of tax write offs to lower my taxable income plus i was writing myself a salary so I did not have to claim the full 167k i made that year. I only claimed much lower than that through my S-corp in salary. Maybe that is why I got away with it. This was also after combining my wife's salary as well.
Posted on 3/14/11 at 4:53 pm to TigerintheNO
Yeah, it's your AGI. After all your deductions, this is the chart for income limits.
Posted on 3/14/11 at 9:31 pm to Baylor
It's not a big deal if you find out you are not eligible. I just went through this. I made more than I ever expected and exceeded my income limit :O-Tballer:. I then had my Roth IRA "recharacterized" to a traditional IRA. You can make this change in 1 day before you decide to file your previous years taxes. You will know between the time you get your W-2's and the April tax deadline. Not a big deal. No penalty or fees for "recharacterizing."
Here's some info:
Here's some info:
quote:
What is a recharacterization? A recharacterization (correction) allows you to reverse an IRA transaction (either a contribution or conversion) under a variety of circumstances. For example: Contributions: Maybe you made a contribution to a Traditional IRA but later decide you want to switch it to a Roth. Or you made a contribution to a Roth IRA early in the year but later earned too much to qualify. Or your income turned out to be lower than you thought, and you want to switch to a Traditional IRA because you can now deduct the contribution after all. The reason doesn't matter. The recharacterization rules allow you to reverse the transaction. Conversions: Maybe you made a conversion from a Traditional IRA to a Roth IRA, but the market fell dramatically after your conversion, and now you want to reverse the transaction to reconvert at a lower balance to reduce your tax bill. Again, the reason doesn't matter. For more information, see the recharacterization instructions for IRS Form 8606. The details can get complex, especially when a partial recharacterization is involved, so check with a retirement consultant and your own tax professional concerning your situation. Importantly, keep in mind that there is a deadline: You can make a recharacterization only until October 15 of the year following the calendar year in which you originally contributed or converted. Can I recharacterize and then reconvert an IRA? Yes. If you have recharacterized your Roth IRA back to a Traditional IRA, you may be able to reconvert to a Roth IRA. Remember: the rules and requirements to qualify for a recharacterization can be complex,You should consult a tax advisor to more fully understand the rules surrounding reconversions, including the required waiting period.
This post was edited on 3/14/11 at 9:33 pm
Posted on 3/15/11 at 12:03 am to DrewSimp82
It's not a big deal to change them, but if you participate in an IRA at work, you can't contribute to a traditional IRA. The benefits of a traditional IRA is the tax deductibility, and a possible tax credit. You can get the tax credit with a Roth as well if you make under $27,000 single, $55,000 married (check my numbers, but they're close). The benefits of a Roth are endless.... Tax free withdrawls. Enough said. You can structure a traditional to allow for substantial contributions, but a Roth locks the doors at $5,000.
Posted on 3/15/11 at 8:09 am to adavis
So if I do a simple Ira with work, I can't do a traditional? And I make too much to do a Roth. So what else do I use?
Posted on 3/15/11 at 9:21 am to mtcheral
quote:
So if I do a simple Ira with work, I can't do a traditional? And I make too much to do a Roth. So what else do I use?
Maybe just open a money market account? It's as liquid as a savings but you get to invest and earn better than the .01% interest of a regular savings, no restrictions like income limits or anything. I am no expert so hopefully someone can be of more help.
This post was edited on 3/15/11 at 9:23 am
Posted on 3/15/11 at 11:10 am to DrewSimp82
That's what I'm doing now. Was hoping for something better with some tax advantages. Thanks.
Posted on 3/15/11 at 12:01 pm to mtcheral
quote:
So if I do a simple Ira with work, I can't do a traditional? And I make too much to do a Roth. So what else do I use?
You can do an annuity. A fixed one usually pays around 3%-4% (that's a good one anyway). Variable annuities are a good choice if you have a high risk tolerence. They're linked to the S&P 500. You can always play the stock market too.
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