Roth IRA Income Limits

[ToadX]

I'm filing independently and I understand the phase out limit for Roth IRA contributions starts at $105k. Last year I made less than $105k. I already contributed $5k into my Roth IRA at the beginning of this year for the 2009 year.

This year my MAGI might be more than $105K. I don't know yet. When determining if I'm eligible for a full contribution (for 2009), do they use my 2008 MAGI or my 2009 MAGI? I originally assumed they used the 2009 MAGI, but I realized this would be weird since you don't know what your 2009 MAGI will be until after 2009 is over and after you prepare taxes for the year 2009.

Suggestions on what I should do? I don't want a penalty, but I won't know for sure what my 2009 MAGI is until after the year is over. Thanks.

[maat55]

You do have the option to just apply the money next year before April 15th. There are people here who may know this, but you might also ask your fund manager(superviser) this question as well.

[MonkeyMama]

2009 contributions are based on 2009 MAGI. This is why you have until April of following year (tax deadline) to make your contribution.

I recommend anyone in this predicament wait until the year is over to fund their IRA. You can put it in earlier, and pull it out before April 15th. But you could be taxed on any earnings, etc. From my experience stock brokers don't always understand the rules and often create problems - I am a tax preparer - I get a lot of incorrect 1099s, etc. in these cases. It's simplest to wait.

Since you already contributed, wait until you prepare your taxes, and then you can withdraw any over-contribution. But in the future I would just wait until the year is over.

[Taxplanr]

From a tax preparation point of view, it is easier to wait. From an investing point of view it may vary. If some of the investment is not allowed or completely disallowed, you may re-charaterize as an after tax contribution to a regular IRA. If the investment in the Roth is a loss, you may choose to sell and write the loss off against income taxes. lowering MAGI and then qualify to fund a Roth. You will need to sell before the end of the year to execute that strategy.

Bottom line invest when it makes sense and you can afford to.

[ToadX]

Ok, thanks!