Roth contribution before income changes?

[Laker]

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So the Mrs. is going to probably get a pay raise when she transitions from resident to attending. Currently, she has no job lined up. Is there a problem if she were to make a max Roth contribution January 1st, 2009, well before a potential start date of August, when she will then no longer qualify for the Roth.

I think Jan 2010 is going to be the last year that we can contribute, so of course we want to do so. Technically, there are no guarantees that your future income will increase, so at the time of the deposit, her income is not projected to be more than the limit.

What do you think?

 

[touchadream]

Roth contributions, like all a IRS qualified plans, are subject to tax year maximums. I am assuming you are on a calendar year. So jan 1-12/31 income is the limiting factor, each year. Its actual income for that year.

 

[Laker]

Roth contributions, like all a IRS qualified plans, are subject to tax year maximums. I am assuming you are on a calendar year. So jan 1-12/31 income is the limiting factor, each year. Its actual income for that year.

so what happens if i make the deposit in jan when income is below levels and then it increases later?

it is like making a roth deposit and then winning the lottery...what happens? do you have to withdraw the contribution somehow?

 

[Sol Rosenberg]

so what happens if i make the deposit in jan when income is below levels and then it increases later?

it is like making a roth deposit and then winning the lottery...what happens? do you have to withdraw the contribution somehow?

You have 2 options: 1. Recharacterize the contribution to a traditional IRA (with no penalty) 2) To withdraw the contribution AND pay a 10% penalty on the withdrawal, even if you do so in the same tax year (as if you recharacterized the contribution to a traditional IRA and then withdrew it.) That's why it's best to wait until the end of the year to make your contribution to avoid penalties. If you haven't contributed for 2009 yet, you can make your 2009 contribution in early 2010 without any penalties. You just won't be able to contribute for 2010 (based upon what you wrote.)