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Well, your marriage status as of Dec 31 affects how you can file for the entire year, so it's not really that it's 'retroactive'. Given the circumstances you provide, if your MAGI is over $10k and you file married, separately, any Roth contribution made for that tax year would be considered excess. To fix the issue, you can recharacterize the contribution to an after-tax Traditional IRA, you can take the appropriate share of the money (needs to be calculated by the custodian) out of the account and pay penalties on the gains removed, or you can pay a 6% excess contribution tax for every year the money remains in the account until you are eligible to contribute to a Roth account again.

Thanks, AJ. That's very helpful. I don't know if I'm going to get married this year, but it might happen (I don't really care about the institution of marriage but my partner very much wants to do so after eight years together, and I'm giving it serious thought), so I think I'll hold off on the max Roth contribution I was going to make on January 1st. Basically I'm trying to figure out how to minimize taxes and student loan payments in addition to maximizing retirement if we do get married this year. My circumstance is complicated because my student loan payments are based on income rather than a set payment.

I assume that you have lower payments based on your income alone because of an income-based repayment plan for your student loans? Don't forget, in addition to the limits on contributing to a Roth account when filing separately, you will also lose the ability to deduct student loan interest when filing separately. See IRS Pub 970 for details.

You should also look at if you will end up paying significantly more in taxes, since the bracket limits for married filing separately are not as favorable as either single or married filing jointly, especially when there is a disparity in income.

Yes, I'm currently repaying via IBR, and am participating in the Public Service Loan Forgiveness program (six years and change to go...).

I've run the numbers on all three options -- single, married filing jointly, and married filing separately -- and the largest taxes + student loan burden by far is married filing jointly, since the IBR then takes into account the spouse's income as well. Married filing separately increases the total burden from our current single status by about $100 a month. Even losing the student loan interest deduction makes MFS the better option by thousands of dollars.

Any additional ideas on minimizing tax burden with the MFS status? My major goal is to keep my student loan payments as small as possible until they're forgiven while also channeling the remaining inheritance (three years of maximum Roth contributions) into my retirement as best I can.

-Narn Ceredir
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