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Hi, I understand there is some max income you can have before you are not allowed to contribute to a Roth IRA. The issue for me is I have steady income from normal job at 56k a year. But then I have variable income from playing poker which will vary from year to year. This year it was a little over 50k, which I believe puts me above the Roth contribution limit. The gambling winnings were declared under "Other Income". I'm going to consult my tax advisor about this but was wondering if anyone has info on this? Thank you.
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The income limits for Roth IRA contributions are based on your Adjusted Gross Income with some modifications. So it includes all of your income from all sources.

--Peter
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Hi, I understand there is some max income you can have before you are not allowed to contribute to a Roth IRA. The issue for me is I have steady income from normal job at 56k a year. But then I have variable income from playing poker which will vary from year to year. This year it was a little over 50k, which I believe puts me above the Roth contribution limit. The gambling winnings were declared under "Other Income". I'm going to consult my tax advisor about this but was wondering if anyone has info on this? Thank you.

At around $106k, you can partially contribute to a Roth IRA. You can find the income limits in Publication 590.
http://www.irs.gov/publications/p590/ch02.html#d0e9254

401k contributions with reduce your MAGI. If you made some in 2007, you may find out you could make your full contribution to a Roth IRA depending on size of your 401k contributions and other income you failed to list. You will need to calculate your MAGI and compare it to the table in Publication 590.

For 2008, you could plan to make 401k contributions to reduce your MAGI so you can contribute to a Roth IRA.
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Thanks for the info. If I am unable to contribute to the Roth IRA do I just hold onto it? Or would it make more sense to transfer it to a Traditional IRA account? If I keep the Roth I guess there will be some years where I can contribute and others I cannot depending on where that variable income level is. However, as my regular salary goes up it will become increasingly unlikely I can contribute to the Roth.
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If I am unable to contribute to the Roth IRA do I just hold onto it? Or would it make more sense to transfer it to a Traditional IRA account?

You can't. Besides, it would make no sense to trade tax-free future earnings for taxable future earnings.

Phil
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If I am unable to contribute to the Roth IRA do I just hold onto it?

Yes, you just hold onto it and let it grow. In the years that you can contribute, I would recommend doing so. You never know how things will change relative to your income and even the tax laws, so having that money invested and growing and adding as you are allowed is a reasonable plan.

We are in a similar situation where we have only been able to contribute to a Roth IRA twice, but there is a chance that we will be below the income limits for 2007, and if we are, then I will make a 3rd contribution into both DH's and my Roth. Since my DH is self-employed, his income fluctuates wildly, so I just wait until I do our taxes, and if we are elibible, that's when I make the contribution.

You may find a similar strategy works in your situation as well.
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Yeah, I guess just letting it grow makes the most sense. I know that most advisors say max out the 401k up to the match, then max out a Roth, and if you want to contribute more after then up your 401k further.

Would it make sense if I am not doing the Roth to increase my 401k allocation? Does it depend how old I am?
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Yeah, I guess just letting it grow makes the most sense. I know that most advisors say max out the 401k up to the match, then max out a Roth, and if you want to contribute more after then up your 401k further.

The problem with just listening to most advisors is they cannot cover all the exceptions. Your case represents an exception. Why? Because you have a lot of variable income covered in the "other income" category. In your case, it is to your advantage to contribute more to your 401k so your MAGI ends up lower, potentially making you fully qualified to make a Roth contribution.

Would it make sense if I am not doing the Roth to increase my 401k allocation?

Yes, see above.

Does it depend how old I am?

Yes, over age 50 has catch-up contributions
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The issue for me is I have steady income from normal job at 56k a year. But then I have variable income from playing poker which will vary from year to year. This year it was a little over 50k, which I believe puts me above the Roth contribution limit.

Are you sure you are over the MAGI (Modified Adjusted Gross Income) limit? If your income is $106k before 401(k) contributions and FSA or HSA deductions, and you have put as little as $7k toward those items, you are eligible for a full Roth contribution for 2007. The MAGI phase-out limit for 2007 for a single person is $99k - $114k. Which means even if $106k is your MAGI, you are still eligible for a partial contribution of just over half of your maximum contribution amount.

Please see IRS publication 590 (http://www.irs.gov/pub/irs-pdf/p590.pdf) on how to calculate MAGI before completely ruling out a Roth contribution for 2007.

And note that the phase-out range is increase to $101k - $116k for 2008.

And to answer your question from your later post: Would it make sense if I am not doing the Roth to increase my 401k allocation?

Increasing your 401(k) contribution can drop your MAGI below the cutoff limit for a Roth, so it may make even more sense to increase your 401(k) contribution if you still want to contribute to a Roth and can afford to do both.

AJ
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Sweet, it looks like my 401k contributions will keep my MAGI below the limit for this year. Thanks for all the info.
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