Would you Roth if you are close to the cut-off?

[WinterWine]

I believe H and I are getting pretty close to the MAGI cut-off for Roths. We were okay for 2014, but with raises this year it's hard to tell exactly how close we'll be.  We both always max our IRAs by contributing in 3 paycheck months.  Would you continue to contribute to Roths knowing you may have to reclassify those contributions? I hate to just sit on the money for a year until its tax time - I'd rather have it in the market.

For those who have had to reclassify, how much of a pain in the butt was it?  And does anyone know the exact calculation for MAGI or what line it is on tax returns?  Somehow I always struggle to figure out the exact number.

[geek96]

I am withdrawing excess contributions now. It was easy with vanguard but I am having trouble with fidelity.

I don't know much about it but they are taking my 2014 contributions made in 2015 and separating them from my 2014 calendar contributions. I don't understand why I am going to receive two withdrawal statements. I am hoping this doesn't bite me in the ass later on. They said it was the only way to do this.

[Susie]

We've been on the line for a while, and will probably stay there for another while. For 2013, I contributed the max throughout the year, and then had to recharacterize about $2500 of the $5500 for each of us. It was enough of a PITA that for 2014, I waited until 12/31 to put anything in. We unexpectedly wound up being eligible this year for the full contribution, so I needed to find the full $11k between 12/31 and 4/15. It was a combination of not expecting to be eligible to put $5500 (x2) in, plus my Q4 bonus was not what I anticipated. I raided my e-fund for the last little bit of the $11k, which I'll have to pay back into my e-fund with my 2015 Q1 bonus. That's in addition, of course, to not enjoying the benefits of having the money in the market during the 2014 calendar year.

In sum, I have not mastered fence-sitting.

For 2015, I think I'll start setting cash aside in May toward 2015 Roth's. I was just going to let it sit in my e-fund until 12/31, but if others have better options I'll certainly reconsider.

[cjeanette]

Wait until you file your taxes in 2016 and then see where you are at. If you can contribute make the 2015 before April 15th, 2016.

[SJ]

Mar 5, 2015 16:46:12 GMT -5 cjeanette said:

Wait until you file your taxes in 2016 and then see where you are at. If you can contribute make the 2015 before April 15th, 2016.

This is what I would recommend and have done in the past myself.

[Poppy]

Mar 5, 2015 16:27:56 GMT -5 WinterWine said:

  Would you continue to contribute to Roths knowing you may have to reclassify those contributions? I hate to just sit on the money for a year until its tax time - I'd rather have it in the market.

You can invest it now in a taxable account and then withdraw when you make the Roth contribution.

But also, I've recharacterized and that part is simple. Doing the taxes was the hard part. If you have no other (traditional) IRAs though, another option is to go straight to backdoor Roths.

[WinterWine]

I've been trying to figure out what all goes into MAGI as well. Is it essentially Income minus Traditional 401k contributions minus HSA contributions? If so I think we'll be within $4k or so.

Poppy you make a good point about just putting our Roth contributions in our taxable brokerage so they can have some growth, and then transferring that into the IRAs come tax time...

geek96 I have Vanguard for my accounts so hopefully that will be easy if we have to reclassify, but unfortunately H has Fidelity.

[aurora]

Mar 5, 2015 16:46:12 GMT -5 cjeanette said:

Wait until you file your taxes in 2016 and then see where you are at. If you can contribute make the 2015 before April 15th, 2016.

This is what we're doing this year for 2014.  I suppose it's not quite as good as investing earlier (during your actual 3-paycheck months in 2014) but it's better than not investing!

[v]

Mar 5, 2015 16:27:56 GMT -5 WinterWine said:

Would you continue to contribute to Roths knowing you may have to reclassify those contributions? I hate to just sit on the money for a year until its tax time - I'd rather have it in the market.

False dilemma.  Put the money in a brokerage account for now, and then move that money to an IRA -- Roth or not -- in April 2016.

[WinterWine]

Mar 5, 2015 18:19:07 GMT -5 v said:

Mar 5, 2015 16:27:56 GMT -5 WinterWine said:

Would you continue to contribute to Roths knowing you may have to reclassify those contributions? I hate to just sit on the money for a year until its tax time - I'd rather have it in the market.

False dilemma.  Put the money in a brokerage account for now, and then move that money to an IRA -- Roth or not -- in April 2016.

Have you done this? It just occurred to me that if the stocks dropped and I had to sell to move it to the IRA, then that would suck. But can you transfer sticks/funds in-kind from a brokerage to an IRA?