For 2014, if your modified adjusted gross income is more than $114,000 but less than $129,000 for single, or more than $181,000 but less than $191,000 for married filing jointly, your Roth IRA contribution is reduced. If you are single and your MAGI is more than $129,000 or married filing jointly, and your MAGI is more than $191,000, you cannot contribute to a Roth IRA.
However, that doesn’t mean you cannot take advantage of the tax-free growth a Roth IRA offers. The Tax Increase Prevention and Reconciliation Act, repealed the $100,000 income limit and marital status restriction for Roth IRA conversions. If you have your pre-tax savings in a qualified plan, such as a 401(k), and you had after-tax savings in a traditional IRA, you could convert the IRA to a Roth and pay the tax on the earnings.
It gets a little more complicated if your IRA holds both pre- and after-tax contributions. Under IRS rules, you cannot choose to convert the nondeductible contributions to a Roth and avoid paying tax at conversion. Instead, the amount you convert is deemed to consist of a pro rata portion of the taxable and nontaxable dollars in the IRA. Additionally, you must aggregate all of your traditional IRAs, including SEPs and SIMPLEs, when you calculate the taxable income resulting from a distribution from (or conversion of) any of the IRAs.
In one instance, we had a client who was able to roll his IRA into his 401(k) with a new employer. He then made after-tax contributions to his IRA and before investing it, we were able to convert it to a Roth.
At Henssler Financial we believe you should Live Ready, and that includes knowing how to take advantage of the retirement savings vehicles available. If you have questions regarding your retirement savings strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at firstname.lastname@example.org.