Variable MAGI - Best Strategy for Roth IRA Contribution

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Topic Author
curiousinvestor
Posts: 157
Joined: Fri Dec 21, 2007 10:36 pm

Variable MAGI - Best Strategy for Roth IRA Contribution

Post by curiousinvestor »

Hi Everyone,

Let's say you don't know what your salary will be for 2021 calendar year (variable income). I know that Roth IRAs have contribution limits if you make too much $$$. Here's a chart that summarizes for both regular IRA and Roth IRA: https://www.nerdwallet.com/article/inve ... ion-limits

So, the way to manage this for a Roth IRA, I'm thinking:
- Wait until after 12/31/2021 to do a Roth IRA 2021 contribution (so you wait until at least 01/01/2022 to contribute to Roth 2021). That way you'll know what your 2021 calendar year MAGI generally is.

Does that make sense? Or is there something else to consider?

Thanks!
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David Jay
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Re: Variable MAGI - Best Strategy for Roth IRA Contribution

Post by David Jay »

If you have no traditional IRAs with pre-tax balances (i.e. rollover from 401K or contributions that you deducted on your taxes), the backdoor Roth accomplishes the same thing as a Roth contribution without income limits. If you are close to the income limits, I would use the backdoor Roth process.

Link here: https://www.bogleheads.org/wiki/Backdoor_Roth
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Topic Author
curiousinvestor
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Re: Variable MAGI - Best Strategy for Roth IRA Contribution

Post by curiousinvestor »

David Jay wrote: Sat Oct 16, 2021 7:05 pm If you have no traditional IRAs with pre-tax balances (i.e. rollover from 401K or contributions that you deducted on your taxes), the backdoor Roth accomplishes the same thing as a Roth contribution without income limits. If you are close to the income limits, I would use the backdoor Roth process.

Link here: https://www.bogleheads.org/wiki/Backdoor_Roth
Gosh, that's right. Thanks David Jay. I haven't engaged in this thought process ever so it didn't come to mind.

Hmm. I have a rollover IRA (I moved it from a 403b from prior employer to a Rollover IRA, both with Vanguard), and I definitely don't want to convert that entire Rollover balance to a Roth IRA because then that entire balance will increase my MAGI, if I understand it correctly. So, I'm thinking I possibly forgo a Roth contribution this year, depending on what my MAGI is looking to be towards the end of this year.
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Eagle33
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Re: Variable MAGI - Best Strategy for Roth IRA Contribution

Post by Eagle33 »

Does your current employer have a 401k or 403b that accepts rollovers from a rollover IRA? If so, then rollover to your employer retirement account to empty out your non-Roth IRAs to free up the IRA for future backdoor Roth contributions.
tashnewbie
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Re: Variable MAGI - Best Strategy for Roth IRA Contribution

Post by tashnewbie »

If you have a current workplace plan (401k etc) and it will accept an incoming transfer of the Rollover IRA, you’d be able to do backdoor Roth without implicating the pro rata rule.

I’d only do that if the current workplace plan has good fund options and low overall fees.
Topic Author
curiousinvestor
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Joined: Fri Dec 21, 2007 10:36 pm

Re: Variable MAGI - Best Strategy for Roth IRA Contribution

Post by curiousinvestor »

tashnewbie wrote: Sat Oct 16, 2021 8:03 pm If you have a current workplace plan (401k etc) and it will accept an incoming transfer of the Rollover IRA, you’d be able to do backdoor Roth without implicating the pro rata rule.

I’d only do that if the current workplace plan has good fund options and low overall fees.
Thank you tashnewbie and Eagle33. I will have to look into that. I am currently not participating in my new employer 401k until Jan 1st. I don’t think the mutual fund options are all that great either. So I’d have to weigh the pros cons of rollover or not. I like having everything in Vanguard accounts and the new 401K I’ll just contribute to best low cost fund and balance against my Vanguard accounts Roth IRA and Rollover.
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