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Author: 5MinMajor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76074  
Subject: Roth Question Date: 8/11/2006 11:38 AM
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I have been looking at opening Roth IRAs for my wife and I. I have yet to find a definitive answer (or at least be smart enough to figure out the answer) on what exactly is the $160K limit. With salaries and investment income taken into consideration - we make over $160K/yr. However, if you take out the pre-tax contributions to our retirement plans, mortgage interest deductions, child related deductions, pre-tax FSA and health-insurace, etc... then our reportable income on the 1040 is much lower....

.... do we still qualify for a Roth?


Major
- tax code confused
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Author: ptheland 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: 53093 of 76074
Subject: Re: Roth Question Date: 8/11/2006 11:59 AM
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.... do we still qualify for a Roth?

Well, you don't say how big those deductions are. And not all of them can be deducted from your income for Roth purposes.

The $160k number is in Adjusted Gross Income (AGI) as reported on your tax return (with a couple of modifications that probably don't apply). I don't recall the line number offhand, but its the last line on the front page of your 1040. That's the number that needs to be under $160k. And if you want a full Roth contribution, it needs to be under $150k. Between $150k and $160k, you can make a partial Roth contribution.

I believe IRS publication 529 will have all of the details, and a worksheet to see if any of those modifications apply to you. You can get that pub from the IRS web site, www.irs.gov .

--Peter <== hoping he got the right publication number from memory

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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: 53094 of 76074
Subject: Re: Roth Question Date: 8/11/2006 12:08 PM
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I have been looking at opening Roth IRAs for my wife and I. I have yet to find a definitive answer (or at least be smart enough to figure out the answer) on what exactly is the $160K limit. With salaries and investment income taken into consideration - we make over $160K/yr. However, if you take out the pre-tax contributions to our retirement plans, mortgage interest deductions, child related deductions, pre-tax FSA and health-insurace, etc... then our reportable income on the 1040 is much lower....

.... do we still qualify for a Roth?


You may. Use Worksheet 2-1 on page 56 of Publication 590 ( http://www.irs.gov/pub/irs-pdf/p590.pdf ) to figure out if you qualify or not.

In general, the pre-tax contributions to retirement plans and FSAs are not counted in your AGI, so they aren't counted in your MAGI. However, student loan deductions and traditional IRA deductions (also not counted in your AGI) are added back in. Mortgage interest is a deduction after the AGI is figured, so it doesn't decrease your AGI or you MAGI, only your tax.

AJ

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Author: ptheland 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: 53095 of 76074
Subject: Re: Roth Question Date: 8/11/2006 12:58 PM
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Looks like I blew that pub number. AJ has the right one - pub 590.

--Peter

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Author: 5MinMajor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 53096 of 76074
Subject: Re: Roth Question Date: 8/11/2006 1:07 PM
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Thanks AJ & Peter

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