double check my Roth calc please

[KTP]

I just ran some numbers in the turbo tax 2009 estimator and also just read that the Roth contribution phaseout start limit was increased to 167,000 MAGI in 2009.

I believe we may just be able to squeak in a partially phased out $3000 contribution for each of us for the 2009 tax year assuming our MAGI comes in around 170K and also assuming that with 0 income I qualify based on a spousal contribution.

Just to confirm, the rollover thing from a 2009 and 2010 non-deductable IRA that I set up and rolled over for my wife into a Roth would not affect this $3000 contribution? So she would have $13000 total in her Roth (currently it is 10,000 from the rollover) and I could have a new Roth (don't have one now) with $3000 in it. This would be good news if true.

Man those phaseouts are harsh...I still can't get over the fact that you are phased out of $10,000 worth of contributions with just a $10,000 increase in income (which after taxes and medicare is about $6000)...who in the world thought that was fair?

[jIM_Ohio]

Why do a conversion if tax rate is so high?
The income limits on doing a conversion are LOWER than the income limits to contribute.

I am eligible for a full 5k contribution for me, and 5k for wife.
We are NOT eligible for any Roth conversions until our MAGI is lower.

[KTP]

Because I felt like I could handle the 33% tax rate on the $0.31 the non-deductable $5000 IRA I set up for her in Dec 2009 earned in interest in the money market account.

Besides, you are wrong...there are NO income limits on conversions starting in 2010 (this year). I thought you were a tax guy

Anyway, I have already made her 2009 and 2010 non-deductable regular IRA contribution and have already rolled that into a $10,000 Roth for her. For me I am keeping my traditional IRA since I have huge gains in it that would be taxable.

What I am talking about is making a 2009 normal Roth contribution for her by April 15, and setting myself up a new Roth by then also. I just found out we could contribute a reduced amount ($3000 each I estimate) because they raised the phaseout start point from $160K to $167K in 2009. In 2008 we had large capital gains from a lucky timing sell of some stocks and were over the 160K limit. This year we are over the 167K MAGI also, but under the 177K total phaseout limit.

I don't know why they have to make everything so complicated...I think they really just want everyone to depend on SS when they retire.

[MonkeyMama]

If I understand correctly, you made non-deductible contributions for 2009 and 2010 - $5k each for the both of you.

Um, no, you can not contribute any more into ROTHs. The most is $5k per year, per person (total of all IRAs - deductible, non-deductible, ROTHs, etc.). The only exception if SEP IRA (which is treated very differently). So, if you put $5k/each into a non-deductible IRA, you've both maxed out your IRA options for the year.

I suppose it's promising you can still contribute to a ROTH. Say, for example, you can do $3k/each into ROTHS, in 2011. You could then put $2k/each into non-deductible IRAs. Does that make sense?

There are no income limits on ROTH conversions in 2010.

[KTP]

Oh sorry Jim, it was MM that was the tax guy (girl?)

Oh ok, so my wife cannot make any Roth contribution for 2009 or 2010 since I have already done $5000 for her in a non-deductable IRA for both of those years. I didn't realize it was a total thing. That is fine, she still has the $10,000 Roth rollover from it, which is better than the $3000 max she would have be eligible for with a normal Roth contribution.

I have not contributed ANYTHING for myself into any type of IRA for 2009 or 2010. I guess I will just open a new Roth and toss in $3000 for my 2009 contribution. This way I will not have to pay any taxes (since I have the other old IRA with lots of gains).

I doubt I will be allowed any contribution in 2010 for a Roth since I *hope* to sell $60,000 or so of options this year. Pity that.

Thanks yet again MM!

[disneysteve]

The Roth contribution limit is $5,000/year to a traditional or Roth, not both. If you already put $5,000 into a traditional IRA for 2010, you are done for this year. You can't put any more in until 2011.

[MonkeyMama]

Yup - you've got it now.

[TermMonster]

I heard someone mention that you can pay the tax due on roth conversions in 2 installments (the current tax year and the following tax year). Has anyone heard anything similar? This would make 2010 roth conversion a bit more attractive.
Thanks!

[disneysteve]

I heard someone mention that you can pay the tax due on roth conversions in 2 installments (the current tax year and the following tax year). Has anyone heard anything similar? This would make 2010 roth conversion a bit more attractive.
Thanks!

That is true. The tax on the conversion can be paid over 2 years.