Consumerism Commentary - Latest Comments in Traditional and Roth IRA Contribution Limits for 2009

Re: Traditional and Roth IRA Contribution Limits for 2009

Damica — Tue, 27 Apr 2010 16:18:21 -0000

I have Roth accounts at both Vanguard and Fidelity. I use VG only to buy mutual funds and FD to only buy stocks because VG charges fees to buy stocks while FD doesn't.

Because it takes time for money to transfer to these accounts and because I'm not sure what I want to buy yet, I'd like keep money ready in both accounts to buy right when I want to (instead of waiting for money to transfer between accounts). My question is, to accomplish this goal can I technically do the following:

I'll contribute $5000 to each firm ($5k to VG and $5k to FD = $10,000 total for 2010). I would put that money in cash reserves. Throughout the year I'll buy what I want, up to a max of $5000 total. By my tax filing deadline I'll remove the remaining $5000 out of the cash accounts and pay no excess penalty.

I am just concerned that this will get me in trouble because it will look like I contributed $10,000 per year, which is obviously too much for anyone.

Secondly, when I remove the money from the cash accounts, do I need to fill out any paperwork with the IRS? I know I need to fill stuff out with VG and FD.

Thanks for any input.

Re: Traditional and Roth IRA Contribution Limits for 2009

ROBERTA — Sun, 11 Apr 2010 10:28:35 -0000

Make maximum contribution to ira, then retired early. Did not make enough to justify maximum contirbution,. can i take some out by april 15th

Re: Traditional and Roth IRA Contribution Limits for 2009

jean — Tue, 06 Apr 2010 23:40:13 -0000

Yes, you are correct. I called my financial planner to inquire about converting my IRA to ROTH and she advised, the fine print that no one seems to be talking about is that we will have to pay the taxes now. She ran my numbers and for my household income/age and tax bracket it was best to leave the IRA alone.

Re: Traditional and Roth IRA Contribution Limits for 2009

SSers — Fri, 26 Mar 2010 10:37:29 -0000

I'm so glad I found this post! Please help me (I am single taxpayer, under 40yrs, $57k annual income):

I contributed $3500 to my employer's Roth 401(k) in 2009, about $1000 into my employer's regular 401(k), and $1000 into my ETrade RothIRA in 2009. I left my job in 2010, and had to roll over my employer's 401k & Roth401k into my ETrade regularIRA & RothIRA, respectively.

Since I made $1000 in contributions for the 2009 year into the RothIRA, and am now rolling over $4200 (includes market growth on my $3500 from above), so it looks like I deposited over $5000 into my Roth IRA.
My question is, am I allowed to contribute $4000 for the 2009 taxable year, since I only technically contributed $1000, and the additional increase in my account is from a direct rollover? Also, can I still contribute $5000 for 2010?

Is there a penalty by the IRS for contributing over $5000 per year? (Although I really didn't, because $1000 was into the RothIRA, $3500 into Roth401k, and $1000 into regular 401k)

Thanks so much! My situation is unique because my direct roll-over was cash, not securities. Because my employer wouldn't rollover securities to ETrade since they were proprietary funds.

Re: Traditional and Roth IRA Contribution Limits for 2009

zia shanner — Thu, 25 Mar 2010 02:10:56 -0000

Great info! I’m married, filing jointly. My wife has no income apart from mine. Are we (together) limited to the $5,000 limit on Traditional IRA contributions? Can we contribute $5k each to a Traditonal IRA?

Re: Traditional and Roth IRA Contribution Limits for 2009

Bob — Thu, 04 Mar 2010 13:54:37 -0000

The maximum you and your spouse can contribute to a Roth would $6000. $49k is for other retirement plans.

Re: Traditional and Roth IRA Contribution Limits for 2009

Julie — Thu, 04 Mar 2010 12:57:32 -0000

I am 55, self-employed and so is my husband.
So is $49K the maximum I can contribute to my Roth IRA? I don't have a SEP IRA. Between us we don't make much these days -- less than $40K. I received a little inheritance, tho and would like to contribute to retirement.

Re: Traditional and Roth IRA Contribution Limits for 2009

Bob M — Mon, 01 Mar 2010 17:24:13 -0000

I have a 401k to which I contribue the max with makeup (60yo, $22,000) and company contributes $6600. I also have self employment income of about $150,000 and have established a SEP plan. Am I limited to contributing $49,000 less the $28,600 (401(k) or $20,400 to my SEP or can I contribute the maximum allowed to my SEP notwithstanding the 401(k) contributions?

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff P — Sat, 27 Feb 2010 15:59:53 -0000

In 20 years, you will not be taxed on the $5,000 of IRA contribution--because you did not deduct this contribution on a pre-tax basis. In 20 years, you will only pay taxes on the earnings that were generated on the original $5,000.

Nevertheless, this is not an optimal situation.

You have two options to optimize your situation:

1. Reverse your 2009 IRA contribution and pay the 10% early withdrawl penalty plus tax on the earnings.

2. Convert your $5,000 of non-deductible IRA to a Roth IRA in 2010. Then, you will only pay tax on the earnings generated since you originally contributed the $5,000. Then, in 20 years, all of your withdrawls from the Roth IRA will be tax-free.

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff P — Sat, 27 Feb 2010 15:49:12 -0000

I have exactly the same question

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff P — Sat, 27 Feb 2010 15:47:54 -0000

My self-employment income each year from consulting work is approx. $1,000. However, as a real estate investor, I net approximately $100,000 from real estate rental activity that is reported on Schedule E. Can I count any of my Schedule E income as "qualifying income" for the purposes of contributing to a Roth IRA? Or am I limited to the net income (after expenses) reported on my Sch. C for my consulting activity?

Re: Traditional and Roth IRA Contribution Limits for 2009

Julie — Tue, 23 Feb 2010 21:03:50 -0000

My husband and I each contributed the maximum of $5,000 into our Roth IRAs for tax year 2009, however, our MAGI is going to be around $176,000 for 2009. This means we can’t contribute to our Roths in 2009. I also expect we’ll be above the income limit in 2010 as well. Can we take advantage of the 2010 Roth IRA conversion loophole (no income limits on conversions in 2010 only) by converting our excess 2009 contributions to an after-tax Tradition IRA, then continue to contribute the maximum for 2010 as after-tax Tradition IRA contributions, and finally reconverting back to the Roth IRA before the end of tax year 2010?

Re: Traditional and Roth IRA Contribution Limits for 2009

Adam — Sun, 21 Feb 2010 17:16:31 -0000

Hello. I contributed $5000 for both my wife and I earlier in 2009 to a Traditional IRA through Fidelity. When filing my taxes with turbotax, I get the following message: Adam's modified adjusted gross income (MAGI) is $169,313, which puts Adam over the limit for IRA deductions. To deduct a contribution, you can't have a MAGI of more than $109,000 while being covered by a retirement plan at work.

I guess I am fine if I can't deduct this, but what are my options. I don't want to take the money out in 20 years and have to pay more taxes. Please help!

Re: Traditional and Roth IRA Contribution Limits for 2009

Jim — Fri, 19 Feb 2010 15:39:33 -0000

Jeff, I contributed $4,000 to a traditional IRA in 2009 and just realized that I am eligible to make a $5,520 contribution to a Roth IRA for 2009. I want to get $3,520 of the $4,000 out of the traditional IRA and into the Roth and contribute another $2,000 to the Roth before April 15. I turned 50 in 2009 so I am eligible for a $6,000 total IRA contribution. What do I have to do to get the money out of the traditional and into the Roth? Should I attach a note to my 2009 return about this activity?

Re: Traditional and Roth IRA Contribution Limits for 2009

EJ — Sun, 31 Jan 2010 23:00:39 -0000

I can still make contributions to my Roth IRA after five years, yeah? Is there a lifetime limit of how much you can put in, or is it just the yearly maximum?

Re: Traditional and Roth IRA Contribution Limits for 2009

Mark — Thu, 28 Jan 2010 02:31:34 -0000

I'm concluding a 23 year military career and considering my options regarding consolidation of retirement accounts. In addition to my Roth IRA, I have a TSP account, which I understand is treated the same as a 401(k) by the IRS. I have $30K in the TSP account, and $8K is tax free as it was contributed while I was serving in a combat zone. My question is whether it is advisable to roll the entire account into my Roth IRA, and assume I would only have to pay taxes on the remaining $22K?

Thanks - Mark

Re: Traditional and Roth IRA Contribution Limits for 2009

Scott — Wed, 13 Jan 2010 08:54:54 -0000

Jeff,

My income is normally high enough that I am unable to make a Roth IRA contribution. I understand that starting in 2010 we can get around the Roth IRA income limitation by first contributing to a non-deductible Traditional IRA and then converting those contributions to a Roth IRA. So for 2010, I'm planning on making two $5K non-deductible IRA contributions, one for 2009 (before April 15, 2010) and one for 2010, then convert those contributions to a Roth IRA in early 2010. So far so good.

The twist in my situation is that I inherited a Traditional IRA from my domestic partner, who passed away in 2005. Because we weren't allowed to marry, I'm considered a non-spousal beneficiary, and I'm not allowed to roll the Inherited IRA into my own Traditional IRA. Instead, I was planning on following the 5-year rule for distributions of inherited IRAs, i.e. wait until the end of 2010 and withdraw the entire amount in a taxable distribution.

My question is, when I convert the non-deductible Traditional IRA to a Roth IRA, will the IRS consider the Inherited IRA to be part of my Traditional IRA, and thus require pro rata tax on the combined amount? Does it depend on the relative timing of the Traditional-to-Roth conversion, versus the distribution of the Inherited IRA? In other words, would it be better for me to distribute the Inherited IRA first, before converting the Traditional IRA to Roth IRA, or should I stick to my original plan? Or does the IRS consider the Inherited IRA to be different from the Traditional IRA, so the order doesn't matter?

Thanks in advance for your thoughts on this siutation,
Scott

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff Rose — Thu, 07 Jan 2010 16:56:42 -0000

@ DG

Yes, you can do it and as of now will be able to do it each year going forward. A few things to consider:

1. What happens if you earn more in those years? Then you may pay more tax then.
2. If you are under 59 1/2, you better pay the tax on the conversion with money outside the IRA otherwise you'll be subject to the 10% early withdrawal penalty.
3. If you have other IRA's in the mix, those will be included in the conversion total. See this article: http://www.goodfinancialcen...

So you're not missing anything, but for the most part it should cancel out the immediate tax benefit but if time is on your side the large chunk in the Roth IRA will be sweet at retirement.

Re: Traditional and Roth IRA Contribution Limits for 2009

DG — Wed, 06 Jan 2010 15:40:55 -0000

Jeff,

Can I contribute to a SEP IRA (I am self employed) and then convert it to a Roth right away??? For tax purposes, I will get a wright off on my 2010 taxes and pay the tax on the money in 2011 and 2012, am I missing something??? Mainly want to know if I can do a contribution and a conversion in the same year?? Thanks in advance

Re: Traditional and Roth IRA Contribution Limits for 2009

navin — Tue, 22 Dec 2009 10:43:37 -0000

the best solution would be to re characterize your $1000 Roth IRA contribution to 2009 contribution.

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff Rose — Fri, 18 Dec 2009 11:42:21 -0000

@ Dan W and Dan V.

You can contribute to both a SEP and Traditional IRA. The total deduction you are allowed for both is up to $49,000 which is the cap on annual additions to defined contribution plans for 2009. In the event you were able to contribute more, the tradtional IRA would have to be a non-deducitble IRA.

Re: Traditional and Roth IRA Contribution Limits for 2009

Dan V — Fri, 18 Dec 2009 11:08:21 -0000

Dan W, I am in the same situation as you. Did you ever get an answer to the question?

Re: Traditional and Roth IRA Contribution Limits for 2009

Wed, 02 Dec 2009 15:06:33 -0000

wow there is a lot of bad information at the beginning of these comments..

if this has not been explained already..

There are two variables to the deductibility of a Traditional IRA, MAGI And participation in a QRP (Qualified Retirement Plan). If Both spouses do not participate in a QRP, there are NO MAGI limitations to the deductibility of a TIRA contribution...

Also there were no inflation increases on IRA limits for 2010..

If anyone needs real help on this stuff you can email me. I am a CPA and I specialize in pension law...

Re: Traditional and Roth IRA Contribution Limits for 2009

Jeff Rose — Mon, 30 Nov 2009 23:26:55 -0000

@ Melanie. You can most definitely contribute to both. The only thing that MAY happen is that you might not give the full tax deduction for your traditional IRA contribution (It then becomes a non-deductible IRA). It all depends on your AGI (for you and spouse) and whether you have a retirement plan available to you both (you do, of course, but if you have a spouse then that factors in, too). Check out my post on how to qualify for a tax deduction on your traditional IRA contribution http://www.goodfinancialcen... Good luck!

Re: Traditional and Roth IRA Contribution Limits for 2009

Melanie — Mon, 30 Nov 2009 19:20:09 -0000

Can I participate in both my company sponsored traditional 401(k) (max amount: $16,500) and contribute to my traditional IRA in 2009? Any income limitations or restrictions? I have heard varying opinions on this. Thanks!