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Author: Bhoys88 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Roth IRA Date: 10/11/2007 11:41 AM
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I recently opened up Roth IRA accounts for my wife and I, but I am a bit confused on contribution limitations. We might be slipping over the AGI limit in 2008 and I am curious if this just means our contributions are not tax deductible or does it mean we are not allowed to contribute to the funds at all? I am trying to decide whether I should dip into our emergency savings to fund each account to the $4000 limit for 2007 or just keep up my monthly contributions. Any help would be greatly appreciated.
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Author: Dwnwthvwls One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59593 of 76421
Subject: Re: Roth IRA Date: 10/11/2007 1:25 PM
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Roth IRA's are not tax deductible. Traditional IRA's are deductible provided you do not exceed the AGI limit.

Please refer to http://www.irs.gov/publications/p590/index.html for the specifics.

Dwnwthvwls

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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: 59595 of 76421
Subject: Re: Roth IRA Date: 10/11/2007 1:51 PM
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I recently opened up Roth IRA accounts for my wife and I, but I am a bit confused on contribution limitations. We might be slipping over the AGI limit in 2008 and I am curious if this just means our contributions are not tax deductible or does it mean we are not allowed to contribute to the funds at all?

Actually, Roth contributions are not tax deductible, no matter what your AGI is.

The income limits are actually on your Modified AGI (MAGI). MAGI allows you to deduct things like 401(k) contributions, HSA contributions, etc. before determining if you are allowed to contribute. See IRS Publication 590 for details on how to calculate MAGI (http://www.irs.gov/pub/irs-pdf/p590.pdf)

For MFJ, the 2007 MAGI limits are:

Up to $156k - full contributions allowed
$156k - $166k - pro-rated contributions allowed
Over $166k - contributions not allowed

If you are in the phase-out range or have reached the cut-off point and are not eligible, you can either withdraw your additional contributions and any earnings, or you can convert the contributions and earnings to a traditional non-deductible IRA. If you choose to withdraw, you will have to pay taxes on the earnings.

I am trying to decide whether I should dip into our emergency savings to fund each account to the $4000 limit for 2007 or just keep up my monthly contributions.

If you are close to the phase-out range and don't want to be bothered with the hassle of withdrawal or conversion, it may be better to wait until after you figure out exactly what your MAGI is before contributing any more. You are allowed to contribute for 2007 up to your tax filing due date in 2008, and even longer under some exceptions.

AJ

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59597 of 76421
Subject: Re: Roth IRA Date: 10/11/2007 2:03 PM
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For MFJ, the 2007 MAGI limits are:

Any idea yet what the MAGI limits will be in 2008?

IF

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Author: Bhoys88 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59600 of 76421
Subject: Re: Roth IRA Date: 10/11/2007 2:58 PM
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Thank you for the information.

I was reading through the IRS information that was posted and did I understand correctly that there is no income limit when contributing to a Traditional IRA? Just not to exceed $4000, or did I miss something? Also, this $4000 counts toward the $15,500 limit for 2007, correct?

Also, if I max out both our Roth IRA's for 2007 and don't contribute going forward (if we exceed the limit) would it be worthwhile to let the money continue to grow in this account or should I move it as soon as I know we will not be able to contribute anymore? I opened Target Retirement accounts and would like to continue with them.

Thanks again.

bhoy

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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: 59608 of 76421
Subject: Re: Roth IRA Date: 10/11/2007 4:15 PM
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I was reading through the IRS information that was posted and did I understand correctly that there is no income limit when contributing to a Traditional IRA? Just not to exceed $4000, or did I miss something?

That is correct. The only requirement is that you must have at least as much earned income as you contribute. The rub is, above certain income limits, you may not deduct the contribution. The income limits depend on your filing status, your eligibility for a retirement plan at work, and, if married, your spouses' eligibility for a retirement plan at work. The detailed requirements are in Publication 590.

Also, this $4000 counts toward the $15,500 limit for 2007, correct?

Assuming that you are talking about the 401(k) plan limit of $15,500 for 2007, no. An IRA is separate from a 401(k), and their limits do not affect each other, except for the previously mentioned interaction between 401(k) and MAGI, to be eligible for a Roth.

Also, if I max out both our Roth IRA's for 2007 and don't contribute going forward (if we exceed the limit) would it be worthwhile to let the money continue to grow in this account or should I move it as soon as I know we will not be able to contribute anymore? I opened Target Retirement accounts and would like to continue with them.

Assuming that the $4000 contribution grows at an 8% average rate for 30 years, it will grow to over $40k if you leave it untouched. With two accounts, you will end up with over $80k.

AJ

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Author: Bhoys88 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 59630 of 76421
Subject: Re: Roth IRA Date: 10/12/2007 1:13 PM
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Thank you all for the response.

bhoy

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