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Author: goldengirl2362 Three stars, 500 posts Old School Fool Ticker Guide CAPS All Star SC1 Red Winner of the 2013 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121163  
Subject: Reduced Roth contributions? Date: 11/22/2011 12:00 PM
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Good morning,

I had to withdraw 100% of my Roth contributions for 2010 because of the pleasant fact of being over the limit due to a large capital gain. During 2011 I've been setting aside the money that I would like to contribute to my Roth, waiting to see if my AGI would allow the contribution. I believe that I'll be in the middle, able to contribute a reduced amount. My question is, how do I calculate how much this reduced amount is? I haven't found a worksheet or calculator to help with that.

Thank you for your assistance,
Linda
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114327 of 121163
Subject: Re: Reduced Roth contributions? Date: 11/22/2011 12:31 PM
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My question is, how do I calculate how much this reduced amount is? I haven't found a worksheet or calculator to help with that.

Look at Worksheet 2-1 (to calculate your MAGI) and 2-2 (to calculate the amount allowed for your MAGI) in IRS Pub 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

AJ

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114328 of 121163
Subject: Re: Reduced Roth contributions? Date: 11/22/2011 12:40 PM
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My question is, how do I calculate how much this reduced amount is? I haven't found a worksheet or calculator to help with that.
========================
Look at Worksheet 2-1 (to calculate your MAGI) and 2-2 (to calculate the amount allowed for your MAGI) in IRS Pub 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

AJ

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An additional caution: If you know you're in the phaseout range, you probably should wait to make your contribution until you have your return done. You have until April 15 to make your contribution, and you don't want to go over, and withdraw the excess, as you have experienced.

Bill

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Author: powelltmf One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114333 of 121163
Subject: Re: Reduced Roth contributions? Date: 11/28/2011 1:46 PM
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Ouch! withdrawing hurts - I've been there too.

If you don't otherwise have a traditional IRA, there is another strategy to consider that circumvents the Roth limits. This is to contribute, on an after tax basis, to a traditional IRA and then make a conversion to a Roth. There are no longer any imcome limitations on this conversion. Since it is already on an after tax basis, there are no additional taxes either.

If you have a traditional IRA, any conversion must consider the pre/after tax contributions made to date - you can not selectively convert assets in you IRA. Also, you need to consider all traditional IRAs you have, not just the one in which you have made your latest contribution.

I do not maintain a traditional IRA except for the purposes of annual conversions to my Roth. I use an online broker and there are no fees involved in the conversion. I wire transfer the $ and fax the forms. A little circuitous, but effective.

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Author: powelltmf One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 114334 of 121163
Subject: Re: Reduced Roth contributions? Date: 11/28/2011 1:46 PM
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Ouch! withdrawing hurts - I've been there too.

If you don't otherwise have a traditional IRA, there is another strategy to consider that circumvents the Roth limits. This is to contribute, on an after tax basis, to a traditional IRA and then make a conversion to a Roth. There are no longer any imcome limitations on this conversion. Since it is already on an after tax basis, there are no additional taxes either.

If you have a traditional IRA, any conversion must consider the pre/after tax contributions made to date - you can not selectively convert assets in you IRA. Also, you need to consider all traditional IRAs you have, not just the one in which you have made your latest contribution.

I do not maintain a traditional IRA except for the purposes of annual conversions to my Roth. I use an online broker and there are no fees involved in the conversion. I wire transfer the $ and fax the forms. A little circuitous, but effective.

Ken

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