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Quick Tax Question - 2016 Roth IRA/MAGI

1,837 Views | 14 Replies | Last: 7 yr ago by khkman22
GregorCleganeZombie
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January 2016 I fully funded my Vanguard Roth IRA at $5,500 not expecting to hit the $117,000 income limit. I already fully funded my 2017 Roth IRA at $5,500 as well (I will definitely not hit the income limit this year as I leave my job). My income was much more than I expected due to unexpected large bonuses and because I reduced 401k contributions to save for an upcoming expense.

Now I'm looking at Box 1 of my W2 and it is $101,830.78. This doesn't include another $15,223.74 bonus or other income (interest on savings, stock sold, etc.) I think I'm over the $117,000 limit unless I have some factor that I'm not aware of that would drive my MAGI downward.

Anyone have any advice on the best course of action to take?
Casey TableTennis
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AG
If you can't legitimately get under the limit, you can either undo the contribution (and earnings) or recharacterize into a traditional ira. Talk to the firm your assets are at and they can outline steps for you.
GregorCleganeZombie
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Casey TableTennis said:

If you can't legitimately get under the limit, you can either undo the contribution (and earnings) or recharacterize into a traditional ira. Talk to the firm your assets are at and they can outline steps for you.
Thanks

I figured talking with vanguard to take $x,xxx of 2016 roth contribution and converting to traditional would definitely be one way
MemphisAg1
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AG
Happened to me once before.

You can recharacterize the Roth to a Traditional IRA. It will be as if the original Roth never happened.

Then you can convert the Traditional IRA to a Roth. It's a legal back-door way of contributing to a Roth if your income is above the cut-off. But you'll need to first consider tax implications if you have other Traditional IRAs because the conversion could trigger a tax bill on some of them. Read up on it.... there's plenty of literature on the internet.
Harkrider 93
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If you end up taking out the contribution, remember that the tax ramifications will not happen until tax time in 2018. Keep whatever you get from Vanguard and place in smart place for next year's taxes.
NorthsideAg
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AG
I may be wrong on if this is already accounted for in your 101k number, but isn't there the standard deduction and/or personal exemption that lowers your MAGI by at least 10k or more depending on your family status?
Mustang1
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AG
Your bonus should be included in box 1 if paid in Dec. Need to review your final pay stubs.
GregorCleganeZombie
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Mustang1 said:

Your bonus should be included in box 1 if paid in Dec. Need to review your final pay stubs.


I was given "shares" of a private company and turned around and sold them. Supposedly the proceeds will show up on a K1 form or something, I received the check from selling the shares in June 2016.
cheeky
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AG
GregorCleganeZombie said:

January 2016 I fully funded my Vanguard Roth IRA at $5,500 not expecting to hit the $117,000 income limit. I already fully funded my 2017 Roth IRA at $5,500 as well (I will definitely not hit the income limit this year as I leave my job). My income was much more than I expected due to unexpected large bonuses and because I reduced 401k contributions to save for an upcoming expense.

Now I'm looking at Box 1 of my W2 and it is $101,830.78. This doesn't include another $15,223.74 bonus or other income (interest on savings, stock sold, etc.) I think I'm over the $117,000 limit unless I have some factor that I'm not aware of that would drive my MAGI downward.

Anyone have any advice on the best course of action to take?
nm
Harkrider 93
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AG
Those do not lower MAGI. MAGI for most folks is all income minus 401k and health insurance, or box 1 on w-2 plus other income.

The only other common one that might help is doing a tax deductible IRA contribution for the non-working spouse to lower the MAGI.
TXTransplant
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Along these same lines...looks like my MAGI for 2016 is going to be a few hundred $ over the limit for making the full contribution. But since I'm not phased out completely, I'd like to still put some $ in my Roth.

How do I go about calculating how much to put in?
GregorCleganeZombie
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TXTransplant said:

Along these same lines...looks like my MAGI for 2016 is going to be a few hundred $ over the limit for making the full contribution. But since I'm not phased out completely, I'd like to still put some $ in my Roth.

How do I go about calculating how much to put in?


My interpretation

http://imgur.com/a/0myGx
TXTransplant
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Thank you!
GregorCleganeZombie
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TXTransplant said:

Thank you!
Somebody else filled that out as an example for me, I didn't do the math or even check it at this point as I'm still deciding what to do, but I think that's the general procedure.

I figure Vanguard will have a minimum account balance to have a fund in a traditional IRA of $3,000 so I'll just recharacterize $3,000 of my VTSAX balance in my roth IRA to $3,000 of VTSMX in a traditional and call it good.
Harkrider 93
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AG
rough estimate is:

married - for every thousand over the bottom threshold, it is 10% less than the max

single - for every thousand over the bottom threshold, it is 7% less than the max
khkman22
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AG
What is the purpose of the $0-10,000 phaseout range for MFS? I know there are certain penalties from filing that way, but I don't understand them not letting you contribute to a Roth if you file that way.
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