ROTHs funded for 2012

[papa_squat]

Great work! My husband and I just started our Roth IRAs in November. It took a lot of effort to convince DH to get around to it since we're still saving to build a new garage shop next year and pay for it in cash, but we both know it is for the best. We only did $3k each, but I hope next year to contribute the max.

[kv968]

Great work! My husband and I just started our Roth IRAs in November. It took a lot of effort to convince DH to get around to it since we're still saving to build a new garage shop next year and pay for it in cash, but we both know it is for the best. We only did $3k each, but I hope next year to contribute the max.

Remember, you have up until tax day in April to still make contributions for 2012.

[Gina23]

I have my 5500 ready for January 2

There are differing opinions on whether DCA has it's advantages or not... Even though it's probably a false sense of security, I like to think the extra dividends I reap throughout the year make up for anything I may or may not gain by doing DCA.

[thesimplemoneyblog]

Remember, you have up until tax day in April to still make contributions for 2012.

Yeah, don't forget that even if you file a tax extension for your return, you only have until April to make a contribution for the prior tax year.

[bUU]

I have a bit of a concern about the idea of contributing to the Roth IRA in January, though admittedly you have to be making good money to have this kind of "problem". For us, if (for example) either of our employers was to announce the ending of their 401(k) plan, or if the plan became decertified and the contributions ineligible to be deducted, in let's say March, then we would not qualify for the Roth IRA, so contributions we made in January would be penalized (right?) I know we're fortunate to be so close to the limit, but for folks who are so close to the limit, how do you reconcile contributing to the Roth in January with the possibility of that which lowers your AGI enough to make you eligible (the 401k contributions deduction) suddenly vanishing?

[Diavel_guy]

I have a bit of a concern about the idea of contributing to the Roth IRA in January, though admittedly you have to be making good money to have this kind of "problem". For us, if (for example) either of our employers was to announce the ending of their 401(k) plan, or if the plan became decertified and the contributions ineligible to be deducted, in let's say March, then we would not qualify for the Roth IRA, so contributions we made in January would be penalized (right?) I know we're fortunate to be so close to the limit, but for folks who are so close to the limit, how do you reconcile contributing to the Roth in January with the possibility of that which lowers your AGI enough to make you eligible (the 401k contributions deduction) suddenly vanishing?

If you exceed the phase out (either partially or totally) you can always re-characterize from a Roth to a Traditional prior to filing taxes to avoiding any negative tax implications. I've personally done it before.

[bUU]

We fully fund 401(k)s so that's not an option.

[BuckyBadger]

I'm over the limit and I know it, so I just automatically do a backdoor Roth in January. If I were close to the limit I would do the same thing so as to not have to wait until the end of the year to invest.

[BuckyBadger]

We fully fund 401(k)s so that's not an option.

I don't think I understand this statement. How does fully funding your 401k have anything to do with re characterizing your IRA money?

[kv968]

If you exceed the phase out (either partially or totally) you can always re-characterize from a Roth to a Traditional prior to filing taxes to avoiding any negative tax implications. I've personally done it before.

I don't think I understand this statement. How does fully funding your 401k have anything to do with re characterizing your IRA money?

His MAGI is probably too high to take the traditional's deductions since he fully funds his 401k.

For someone married and filing jointly, the phase out for tax deductions is $95-115K for 2013 if the person contributing to it has a workplace retirement plan. Whereas the phase out for Roth's are $178-188K for the same. He's probably caught somewhere inbetween.

[bUU]

Precisely. We cannot recharacterize our Roth contributions into an IRA because we fully fund our 401(k)s. And we cannot do a Roth conversion of preexisting IRAs without making the Roth contributions we have already made "excess" and subject to penalty.