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DH and I got a call from the CPA last night who'd finished our taxes. We had two complex inheritances last year, so we figured a pro should handle it this year. Anyway, we were told that because we both have Roths, we are unable to file separately in the state of Ohio, even though this would save us 20% in federal taxes.

I think something's gotten garbled here. If you file your Federal return Married, Filing Separately, you cannot make a Roth IRA contribution if your AGI is above $10,000. I suspect that the MFS filing status would save you on your combined Federal and state tax, but at the cost of making the Roth contribution.

Your preparer should have advised you of your option to recharacterize the Roth contributions to nondeductible traditional IRA contributions. This would allow you to file MFS and save the 20%, but at the cost of the future savings from the Roth IRAs.

It's not a wonderful set of choices, but you do have a choice.

1) anyone else from Ohio who's ever heard of this one? I can't image how it would benefit anyone, from either end of the spectrum.

2) what kind of brown acid was Ohio's assembly on when they wrote this? Most arcane laws are years old and get contorted over the years, but obviously this can't be more than 5-6 years old.

I'm not from Ohio, but I've heard enough about this problem to understand it. You must use the same filing status on your Ohio return that you use on your Federal return. Because of the way the tax rates are structured in Ohio, a dual-income couple pays significantly more state income tax on a joint return than it does on separate returns. Thus, it is often to a working couple's advantage to file Married Filing Separately.

The problem is that Federal law places a lot of restrictions on the MFS return. Note that this is Federal law, not state. One of these restrictions is the inability to make Roth IRA contributions above $10,000 of income.

3) has anyone with two Roths filed separately anyway, and if so, were there any repercussions?

Don't you dare. You'd have excess contributions subject to the 6% penalty every year until you finally remove them. Bite the bullet and decide which you'd rather have: the Roth IRA contribution or the savings from the MFS returns.

Phil Marti
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