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General Finance – Roth Contributions

Q: For the first time, my wife and I are worried about whether we are disqualified from contributing to a Roth IRA due to our income being too high. So we have a few questions for you! (1) Is it true that the Roth income limit is based on the MAGI, which does not include a deduction for 401K contributions? (2) What if we have already contributed too much for 2014, based on our income limits – can we get the excess contributions back? (3) If we have not yet contributed too much, should we guess-timate how much we CAN contribute and work towards that end, or should we put those funds towards our 401K’s instead?

 

A: When it comes to tax advice, you should confer with your CPA or RTRP (Registered Tax Return Preparer).

 

If you do not have a CPA or RTRP, I have copied James Purgason on this email who is the managing partner for Capital Accounting & Tax.

 

Regarding your questions:

 

1)      Yes, for 2013 and 2014 the Roth contribution limit is based on MAGI and filing status:

a.       See Link for 2013: http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013

b.      See Link for 2014: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-for-2014

2)      MAGI is calculated as follows: http://www.your-roth-ira.com/support-files/worksheet-2-1.pdf

3)      If you think you made and excess contribution, speak with your CPA immediately. There is a 6% excise tax that applies to the excess Roth contribution.

a.       See Link: http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000231024

4)      Do not make a Roth contribution for 2014 until your CPA has reviewed your return and informed you of your allowable contribution amount. 401K plans are not subject to an AGI or MAGI limitation. The max contribution for 2014 is $17,500 if you are under 50 and $23,000 if you are 50 or over.


 

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