No. of Recommendations: 1
Hi folks. I am trying to decide which IRA would be best for the family and I am a bit confused on the Roth side. Currently my wife and mine's combined income is right around the $100K mark. Right now a Roth feels like the best option for us but one question I have is what happens later on when we make more money. We are both looking at raises coming up within the next 3-4 years that will put us well over the $150K limit for Roth contributions. Knowing this, would it be better to go with a traditional IRA rather than a Roth? This has me perplexed as to my gameplan. Thanks to all for any advice!!!

The income limits for Roths are now indexed to inflation. For MFJ, the 2007 MAGI limits are:

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

Additionally, the income limits are on your Modified AGI (MAGI). MAGI calculations are covered in IRS Publication 590: http://www.irs.gov/pub/irs-pdf/p590.pdf They allow you to subtract things like your 401(k) contributions and HSA contributions before you determine your eligibility. So a couple MFJ who each max out their 401(k)s @ $15,500 and each have an individual HSA @ $2850 in 2007 could have an AGI of $192,700 before even reaching the phase-out range, and could make $202,700 before being completely ineligble to contribute.

So you probably won't catch up quite as fast as you think.

Additionally, starting in 2010, the income cap of $100k on Roth conversions is supposed to be lifted (assuming Congress doesn't change the law). So you could potentially contribute to a non-deductible IRA and then immediately convert to a Roth.

As far as what happens if you are unable to contribute to a Roth anymore - your money will just stay in the Roth account, and you manage it just like any other account - you just won't be able to contribute to it anymore. You don't have to remove it if you are ineligible to contribute anymore.

AJ
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