In working through my “Power of Zero” philosophy and plan, which included doing a Roth IRA conversion from my IRAs to Roth (in the hopes of keeping my taxes low to non-existent in retirement) I failed to take into account hitting the limits on who can pay into a Roth.
In order to put money away into a Roth, you have to have a Modified-Adjusted Gross Income(MAGI) less than $135K for singles, and $199K for married couples. Note that it starts phasing out at $120K and $189K. Modified Adjusted Gross Income is before you put in your deductions ($12K and $24K in the US). If you are over these limits, you cannot put money into a Roth IRA. You can put it into a regular IRA, but you can’t deduct the income for tax purposes (so what good is that?)
In this case, I converted over $100K from regular IRA to Roth, and combined with our regular income for the year, its going to push us over $200K. Thus, I am going to have to “claw back” $13K of my Roth contributions for 2018. Uggh!
I have heard that you can invest that into a regular IRA, and then at a later date (since you have already paid the taxes on it) convert it to a Roth with no tax implications. I’m not sure about that, but I am going to investigate it. I’ll let you know at a later date.
So for 2019, if I do a Roth IRA conversion, its only going to be for about $50K, so I can make sure that I stay under the amount. Don’t mess up like I did!
Mr. 39 Months