No. of Recommendations: 1
>> My specific problem is that my gross income may be over 95K this year (depending on bonuses and raises). However, I am making a 10K contribution to my 401K at work. Does this 10K get subracted from my Roth IRA income limit? <<

Yes. Your 401K contributions reduce your W-2 wages. If you grossed $100K and you contribute $14,000 (maximum for 2005) to a 401K plan, your modified AGI for this purpose (absent other considerations) is $86,000.

It's interesting, really, that when you're near the phaseout, your ability to fund a Roth depends on how much you can fund a 401K plan; in that case, the more you put into a 401K, the more you can probably put into a Roth as well.

>> If this is going to be a problem, I already made my 2005 Roth contriubtion of 4K. What happens - does my bank make me put the 4K into a traditional IRA? <<

It's not a problem for you if 401K contributions will keep you below the $95,000 level, but if it were a problem, yes, you would have to recharacterize your Roth into a traditional (and probably non-deductible) IRA. Personally, with dividends and long-term capital gains at a lower tax rate, I'd pull the contributions out (which you can always do without tax consequence) and invest in a taxable account -- unless you thought your income would be low enough to convert the traditional non-deductible IRA to a Roth at some point in the future.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.