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Old 02-06-2013, 08:43 PM
 
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Never had and IRA before, so I apologize if I'm asking obvious questions.

1. Which AGI is considered for Roth IRA eligibility - current year (the year when contributions are made), or the previous year? If current, what happens if your income changes during the year and you are no longer eligible for Roth IRA? We are married filing jointly, and 2012 AGI is 162,000. I think it would be a good problem to have, but what if one of us contributes full $5,500 to Roth IRA, and during the year our income increases and we end up above $178,000, when eligibility begins to phase out?
2. Are you considered "covered by employer retirement plan" for Traditional IRA tax deduction purposes, if you are only eligible for part of the year?

The reason I'm asking the second question is that my husband's company was bought out by their competitor. Transition is smooth so far, but he will not be eligible to contribute to 401K for the first 6 months (until July). I'm covered by 401A at work. If he is considered to be covered, then he is for sure not eligible to deduct his traditional IRA contributions, since the deduction is completely phased out at $115K for married couples filing jointly. If he is not considered covered, then we are under the $178,000 when deduction begins to phased out.

My hunch is that "covered for part of the year = covered", but I can't find clear definition on IRS website.

Looks like we should still do Roth IRA, since we should still be eligible with our AGI. However, at 25% tax rate, I'm not sure Roth even makes much sense. Luckily, I'm eligible for 403B through my employer, and I consider contributing what my husband would normally contribute through his 401K for 6 months to my 403B. Does my thinking make sense? Also, do I understand this correctly: I'm only contributing 5% of my salary to 401A with 10% contribution made by my employer - this is the standard and can't be increased, so 5% to 401A + whatever I choose to contribute to 403B can't exceed 17,500, correct?
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Old 02-06-2013, 11:12 PM
 
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You have between Jan. 1, 2013 through April 15, 2013 to contribute to a Roth IRA for tax year 2012.

If you think you may be close to the income limits, wait until your return is done so you know your AGI for certain, and then make any contributions between then and April 15. This assumes you don't wait until the last day to start doing your taxes =)

I got bit by this a couple years ago as I crossed over into the phase-out territory during 2009 but had made my year 2009 Roth contribution in February of 2009 (as opposed to waiting until March, 2010). It was a pain to deal with since I had to figure out how much that fractional contribution that was part of the phase-out had earned in the market over the past 13 months, extract it all and do the taxes accordingly.
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Old 02-07-2013, 08:52 AM
 
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Oh, so the idea is to contribute in the first quarter of the "next" year. We normally only have two W-2s, and, rarely, 1099Misc in addition to it, so it's not very hard to estimate AGI, even without fully completing tax return. The bigger problem, though, is that IRA contributions will not help us reduce our tax liability.
Weird how this happens. I remember first year when we phased out of child credit. I mean, seriously, I didn't even think that there was an income limit on that credit. Retirement contribution credit was gone that same year for us. All of the tuition deductions are gone, IRA gone (never used it, but now I wish we did ). Anyway, I'm rambling. Better go look into the 403B forms, so that I can start that ASAP.
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