Mon 10 Mar 2008
No Way To Save My Roth IRA
Posted by RichSlick under Money Management
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One of the cruelest ironies of becoming successful in life is how government always seems to hold you down. I have been working on figuring out a way to salvage my Roth IRA account and it simply isn’t going to happen.
The problem with my Roth is income limits. I’m completely baffled by why the government imposes any income limits on Roth IRA accounts. This type of account is funded with post-tax dollars so they tax has already been paid!
I had hoped that our company’s deferred compensation plan in conjunction with maxing out my 401k would help push me under the income limits but even at full contribution there would be no way to get below the phase out income limit and I can’t touch the deferred comp money for years so that would likely end up causing massive problems when it came time to withdraw that money. There would also be some hefty penalties if some plausible scenarios unfolded during the course of the year that gave me pause in moving in this direction anyway.
So I can’t contribute to Roth Accounts this year, I won’t be getting a tax rebate check, and I’ll likely owe 20k in taxes this year. How depressing…..
March 10th, 2008 at 10:43 am
The government likes to get the gains on investments as well. You aren’t going to be taxed again if you lose your Roth IRA - you just aren’t getting the benefit of tax-free growth.
That said, I think the Roth IRA limits need huge reform. Getting married amounts to a penalty since it doesn’t double for a couple. Additionally some parts of the country have higher income to offset higher costs of living. A couple making 170K in Silicon Valley (with $700K broken down 1000 sq. ft shacks) is probably close to 90-100K in other parts in the country. Limits should take this into account.
March 10th, 2008 at 10:45 am
You can actually contribute money to a non-deductible IRA now and then convert it into a Roth in 2010, when the IRS eliminates the income restriction on Roth conversions.
Thats how I am planning on setting up a Roth IRA in 2010 despite the fact that I exceed the income limitations.
March 10th, 2008 at 11:30 am
On the subject of taxes (not specifically about Roth IRA)…
I don’t know if you read Warren Buffett’s challenge to the Fortune 400. I bet them $1M (to charity) if they could prove that they pay less in taxes than their secretaries do. Interesting idea.
http://www.forbes.com/2007/11/14/buffett-taxes-congress-biz-wash-cz_mm_1114buffett.html
Even without the money, if I could model my life after Mr. Buffett, I think I would be in pretty good shape.
March 10th, 2008 at 12:05 pm
Alex,
I’ve considered doing that but I was under the impression that there were income phase out limits on non-deduct IRA’s too. Perhaps I’m wrong on that account.
If I am wrong then I assume I can contribute 2k to my account and 2k to my wife’s account?
March 12th, 2008 at 8:50 am
No, there is no income phase out for non-deductible IRAs, only for Roth and deductible.
You can contribute 4K per individual account (5K in 2008).
here’s an article with more info:
http://www.cbpp.org/5-11-06tax.htm