Income exceeded Roth IRA limit

Submitted by cambriancatalyst t3_z8oxxa in personalfinance

Hi everyone,

I’ve been contributing the max (6k) to a Roth IRA for the past couple of years and this year received a raise last month which will put me over (when accounting for bonuses, etc) the 129k limit for Roths. I currently have my roth set to auto deposit enough money to hit 6k with each year.

My questions, now that I’m going to be over the limit do I need to back door with traditional if I still want to contribute to a roth? Do I need to immediately stop my automated deposits for my current roth FY2022? Is there anything else I’m missing or should be aware of?

Thanks everyone!!

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Comments

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bulldg4life t1_iycleav wrote

Have you accounted for contributions to 401k?

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cambriancatalyst OP t1_iyclkyf wrote

I have not. I only started contributing to a401k this year. Is that included in the limit calculation?

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debbiewith2 t1_iyclu7u wrote

No, they mean that maybe your MAGI doesn’t put you over the limit. If it does, recharacterize this year’s Roth contributions as traditional and convert all of your traditional assets, if the taxes on any earnings and deductible contributions make sense.

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cambriancatalyst OP t1_iycmav1 wrote

Ah because it would lower my tax liability, understood. I don’t think it will but I’ll run the numbers. I’ll look into recharacterizing with my chosen financial institution, as well.

Thanks very much!

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debbiewith2 t1_iycmqae wrote

You’re welcome! Are there existing SEP/SIMPLE/rollover/traditional assets? If not, the backdoor may be a no brainer.

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cambriancatalyst OP t1_iycn579 wrote

No, I’m still quite green with contributions. Only contributed to Roth the past two years and last year I was making much less.

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debbiewith2 t1_iycng7n wrote

So recharacterize and convert the entire account once it’s collected. You’ll expect to pay tax on the attributable gains that will move over to the traditional IRA. Next year you’ll contribute directly to the traditional and convert as soon as you can.

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cambriancatalyst OP t1_iycnv47 wrote

Thank you. When you say convert as soon as you can, does that imply I convert as soon as I have maxed that years contribution limit or is there some type of schedule you have to follow.

Thanks again and apologies for my ignorance!

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debbiewith2 t1_iyco3sh wrote

You’re fine. Assuming you think your investments will go up, you convert as soon as each contribution collects. That way, there are no earnings to pay tax on - they accumulate in the Roth instead. If you forget or don’t have time, convert that contribution when you think of it or after the next one.

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cambriancatalyst OP t1_iycp74y wrote

Hence the point of the Roth, understood. If I may ask one last question, would you consider it a wise strategy to attempt to increase my last remaining 401k deductions for the year (currently contributing very minimally, like $50 a paycheck) enough to lower my MAGI below the Roth limit? I’m really only a couple thousand over and I think it’d be less effort, both now and moving forward, to attempt that approach.

I’m curious to hear your thoughts if you don’t mind and could spare the time.

Thanks again, very much appreciate your input!

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debbiewith2 t1_iycpgno wrote

Getting more money in tax-advantaged space is generally a good idea! If you can afford to do that and this is a good reminder, go for it!

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Werewolfdad t1_iycm9c6 wrote

Https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/

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cambriancatalyst OP t1_iycmlc0 wrote

Thank you. I noticed the cited MAGI figure in your source was listed at 137k for 2019. I don’t exceed that value. Is there an official source for this value somewhere?

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Werewolfdad t1_iycmrh4 wrote

https://www.irs.gov/newsroom/irs-announces-changes-to-retirement-plans-for-2022

Contributions start to phase out at 129

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cambriancatalyst OP t1_iycngit wrote

Got it. Unfortunately I do exceed that and thus cannot just disregard this issue as I initially hoped when reading that paragraph, lol.

Thanks very much!

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Werewolfdad t1_iycnn9b wrote

Backdoor Roth is easy.

Contributing to a 401k also lowers you magi if you do that

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cambriancatalyst OP t1_iyco9io wrote

Thanks! So I could technically just contribute enough to my remaining 401k deductions to lower my MAGI enough to avoid the 129k limit. Hmm, I may just do that.

Much appreciated!

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Man_CRNA t1_iydc59k wrote

Are you referring to your gross salary or your after tax salary?

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