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Old 03-31-2015, 07:47 AM
 
71,651 posts, read 71,801,099 times
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now you got it !
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Old 03-31-2015, 07:59 AM
 
Location: Cape Elizabeth
425 posts, read 387,774 times
Reputation: 745
Quote:
Originally Posted by OnOurWayHome View Post
I know that Roth IRA's have income limits attached to them and that they're based on MAGI. I'm a little iffy on what's included in that number though, even after reading several explanations. Can anyone be of help?

My husband and I each have an IRA, and I also have a 401K. His company does not offer one, so we put the maximum in his traditional IRA. I was putting 10% of my income in my company's traditional 401K. I've recently been able to increase that so that I'm putting the max amount(~18K? I'm under 50) per year. In the last year or so, I started putting 2% into a Roth 401K as well. I'm somewhat concerned because I know there's a penalty on the Roth IRA if you're over income limits. Both my husband and I sometimes gets bonuses, and he occasionally gets commissions as well. If we're under the income limit as I contribute, but end up over by year-end, how does that work? I understand that we should really think about contributing more to the Roth because of the potential tax rate on the traditional as we withdraw, but I'm stuck on this point. I also have to get over the immediate gratification thing on the tax deduction.

Any help is greatly appreciated.
I am not sure if my situation was the same because we had Roth IRA's, not Roth 401K's, but in 2009 we were contributing to a Roth IRA and then we were over the income limits. The custodian of the IRA's has a form you complete and we were able to remove the contributions and earnings (before April 15th )and apply them to the next year, 2010. Then the same thing happened in 2010 and we again withdrew contributions plus earnings and applied them to 2011. Hubby retired at end of 2010, but fortunately he received a lump sum from his employer in 2011 which allowed him to have a Roth and then I did spousal Roth for that year since I was already retired. The custodian sent us 1099R's which I thought were incorrectly coded for "early distributions(codeJ) and codeP-excess contributions plus earnings. However, upon discussion with the custodian and with the accountant, the codes were fine and the 1099R info did not even have to appear anywhere on our TR's for both years. Hope this helps.
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Old 05-09-2015, 10:26 PM
 
Location: RVA
2,167 posts, read 1,267,777 times
Reputation: 4465
Quote:
Originally Posted by mathjak107 View Post
this is not how it works at all.

once you have deductable and non deductable ira's it is looked at as one big mix even if seperate accounts. .

Let's say you have non-deductible contributions of $8,000 and a Traditional IRA that have both grown to $100,000. The taxable amount would be based on a combination of the two if you convert. you can't cherry pick and move the non deductable money only
Ar you sure about this? I've not come across this,
But I hqvent moved monies from a tax deferred or after tax IRA to a Roth, either. I have rolled 401k in to a Roth, and our 401k is specifically designed to force the order of fund removals, as after tax first, all accounts, and since its not a Roth 401k, requires tax payment on all earnings. So when I backdoor those funds to my Roth, I only pay taxes on the earnings.,about a 1/3 of it.
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Old 05-09-2015, 11:56 PM
 
8,860 posts, read 5,139,069 times
Reputation: 10144
Quote:
Originally Posted by OnOurWayHome View Post
I know that Roth IRA's have income limits attached to them and that they're based on MAGI. I'm a little iffy on what's included in that number though, even after reading several explanations. Can anyone be of help?

My husband and I each have an IRA, and I also have a 401K. His company does not offer one, so we put the maximum in his traditional IRA. I was putting 10% of my income in my company's traditional 401K. I've recently been able to increase that so that I'm putting the max amount(~18K? I'm under 50) per year. In the last year or so, I started putting 2% into a Roth 401K as well. I'm somewhat concerned because I know there's a penalty on the Roth IRA if you're over income limits. Both my husband and I sometimes gets bonuses, and he occasionally gets commissions as well. If we're under the income limit as I contribute, but end up over by year-end, how does that work? I understand that we should really think about contributing more to the Roth because of the potential tax rate on the traditional as we withdraw, but I'm stuck on this point. I also have to get over the immediate gratification thing on the tax deduction.

Any help is greatly appreciated.
You have until April 15th each year to make IRA contributions for the previous year. So, you can wait until the year is over to figure out if you can make Roth contributions or not.
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Old 05-10-2015, 12:02 AM
 
8,860 posts, read 5,139,069 times
Reputation: 10144
Quote:
Originally Posted by Perryinva View Post
Ar you sure about this? I've not come across this,
But I hqvent moved monies from a tax deferred or after tax IRA to a Roth, either. I have rolled 401k in to a Roth, and our 401k is specifically designed to force the order of fund removals, as after tax first, all accounts, and since its not a Roth 401k, requires tax payment on all earnings. So when I backdoor those funds to my Roth, I only pay taxes on the earnings.,about a 1/3 of it.

He must be sure, because he is right. That's exactly how it works.
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Old 05-10-2015, 01:36 AM
 
71,651 posts, read 71,801,099 times
Reputation: 49241
Quote:
Originally Posted by Perryinva View Post
Ar you sure about this? I've not come across this,
But I hqvent moved monies from a tax deferred or after tax IRA to a Roth, either. I have rolled 401k in to a Roth, and our 401k is specifically designed to force the order of fund removals, as after tax first, all accounts, and since its not a Roth 401k, requires tax payment on all earnings. So when I backdoor those funds to my Roth, I only pay taxes on the earnings.,about a 1/3 of it.
that is exactly how it works and why people get stung all the time when they try to do back door roths.

all ira's are considered 1 when you have a mix of deductible and non deductible ira accounts. you can not break out moving taxable vs non taxable ira money when you convert to a roth.
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Old 05-10-2015, 09:29 AM
 
Location: RVA
2,167 posts, read 1,267,777 times
Reputation: 4465
But you CAN get 2 checks as part of ONE rollover that is divided in to pretax and after tax, in the proportions that your 401k is in pretax vs after tax, and just put the after tax in a Roth and pretax in an IRA. I ASSUME you could also roll the pretax in to a totally different IRA FOR THE SAME REASON. I understand you cant just pull out aftertax dollars from an IRA, and leave pretax behind. The end result is the same though.
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Old 05-10-2015, 11:19 AM
 
Location: Florida
4,366 posts, read 3,706,500 times
Reputation: 4111
Quote:
Originally Posted by OnOurWayHome View Post
I know that Roth IRA's have income limits attached to them and that they're based on MAGI. I'm a little iffy on what's included in that number though, even after reading several explanations. Can anyone be of help?

My husband and I each have an IRA, and I also have a 401K. His company does not offer one, so we put the maximum in his traditional IRA. I was putting 10% of my income in my company's traditional 401K. I've recently been able to increase that so that I'm putting the max amount(~18K? I'm under 50) per year. In the last year or so, I started putting 2% into a Roth 401K as well. I'm somewhat concerned because I know there's a penalty on the Roth IRA if you're over income limits. Both my husband and I sometimes gets bonuses, and he occasionally gets commissions as well. If we're under the income limit as I contribute, but end up over by year-end, how does that work? I understand that we should really think about contributing more to the Roth because of the potential tax rate on the traditional as we withdraw, but I'm stuck on this point. I also have to get over the immediate gratification thing on the tax deduction.

Any help is greatly appreciated.
I did not finish reading all the posts as I got lost.

You are saying that your company has a 401k program that includes a ROTH option.

You are contributing to both the regular and ROTH 401k. My assumption is the company is not letting you exceed the 401k limit. If you exceed the limit the company should be refunding the money to you.

Assuming you are within the 401k limit you could earn a million dollars a year and still contribute to the ROTH.
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Old 05-10-2015, 11:45 AM
 
Location: Stapleton (Denver)
52 posts, read 60,979 times
Reputation: 68
The poster claiming that the traditional IRA holdings will basically screw up a backdoor Roth IRA conversion is right. It's called the pro rata rule.

https://www08.wellsfargomedia.com/as...-rata-rule.pdf
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Old 05-10-2015, 12:34 PM
 
71,651 posts, read 71,801,099 times
Reputation: 49241
Quote:
Originally Posted by Perryinva View Post
But you CAN get 2 checks as part of ONE rollover that is divided in to pretax and after tax, in the proportions that your 401k is in pretax vs after tax, and just put the after tax in a Roth and pretax in an IRA. I ASSUME you could also roll the pretax in to a totally different IRA FOR THE SAME REASON. I understand you cant just pull out aftertax dollars from an IRA, and leave pretax behind. The end result is the same though.
All withdrawals are prorated when you take any traditional ira money out. You can not just pull the deductable money or non deductable money seperately.

Only roths have that choice if you have other types of ira's.
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