Find out what to do if getting hitched causes a separation between you and your Roth IRA. Get the Money Girl book at http://MoneyGirlBook.com
Money Girl
356 MG What Are the Roth IRA Rules for Married Couples?
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In addition to this show, I also write a free newsletter with tips that are not in the weekly podcast, so be sure to sign up at quickandertietips.com. While you're there, connect with me on social media, subscribe to the podcast on iTunes, or read a transcript of this show, which is episode number 356, called "What are the Roth IRA Rules for Married Couples?" Money Girl Reader named Monica recently asked. I'm getting married later this year and we plan on filing taxes jointly, but I just found out that due to our combined income, I won't be eligible for my Roth IRA this year. What do I do if I've already made contributions to the account? In this episode, we'll cover what married couples need to know about contributing to a Roth IRA. You'll find out what to do if getting hitched causes a separation between you and your Roth IRA. A Roth IRA is an individual retirement plan that's similar to a traditional IRA in many ways, but has some key differences that married couples need to know. The major benefits of a Roth are that distributions can generally be made tax-free. You don't have to take withdrawals in retirement, and you can leave funds in the account as long as you live. These advantages don't change when you get married. However, whether you're eligible to make contributions in the first place and the amounts you can put in each year hinge on your income and tax filing status, you'd think that the contribution limit for a married couple would be double what it is for a single, but it's actually much less. Getting married means you can no longer file taxes as a single. Married couples must choose to file taxes either as married filing jointly or married filing separately. If you're married on the last day of the year, the IRS considers you to have been married for the entire year for tax purposes. No matter your tax filing status, the maximum amount you can contribute to either a traditional or a Roth IRA or a combination of both for 2014 is $5,500. Now, you're eligible for an additional catch-up contribution of $1,000 if you're age 50 or older for a total contribution of $6,500. Unlike a traditional IRA, you become ineligible to make contributions to a Roth IRA when you're considered a high earner. In other words, when you have taxable income over a certain amount, you're simply not allowed to contribute to your Roth for that tax year. Here are the Roth IRA limits for 2014. They apply to your adjusted gross income depending on your tax filing status. If you file taxes as single, head of household or married filing separately and not living with your spouse, the limit is $129,000. If you file as married filing jointly or as a qualifying widow or widower, the limit is $191,000. And if you file as married filing separately but living with your spouse at any time during the year, the limit is $10,000. Note that the income thresholds for married couples apply to their combined income. For instance, when a married couple files jointly and has household adjusted gross income over $191,000, both spouses are ineligible to contribute to a Roth IRA. So, exceeding the allowable income limit means that both Monica and her new spouse will be ineligible to contribute to a Roth IRA. But even if you earn less than the Roth IRA contribution limits, there are still restrictions on how much you can contribute when your income falls into certain income ranges or phase out zones below the upper limits that I just mentioned. Here are the phase out limits for adjusted gross income for 2014. Imagine what's possible when learning doesn't get in the way of life. At Capella University, our game changing flex path learning format lets you set your own deadline so you can learn at a time and pace that works for you. It's an education you can tailor to your schedule. That means you don't have to put your life on hold to pursue your professional goals. Instead, enjoy learning your way and earn your degree without missing a beat. A different future is closer than you think with Capella University. Learn more at Capella.edu Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast, where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify, because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today. If you file as single, head of household, or married filing separately and not living with your spouse, the face-out income ranges from $114,000 to $129,000. If you file as married filing jointly or as a qualifying widow or widower, the range is from $181,000 to $191,000. And if you file as married filing separately, but living with your spouse at any time during the year, the face-out range is from $0,000 to $10,000. Having income in a phase-out zone means you can still put money in a Roth IRA, but you can't contribute the maximum amount of $5500 or $6500 for 2014. To learn more about how to calculate your eligible contribution amount, see IRS Publication 590, Individual Retirement Arrangements, or consult with your accountant or retirement plan custodian. If you're like Monica and find out that you've already contributed too much to a Roth IRA, there's an easy way to fix it. Simply withdraw the contributions before the due date for filing your tax return. For instance, if you overcontribute for 2014, withdraw excess contributions and their earnings before the tax filing deadline in April 2015. And there's even more good news. If you missed the tax filing deadline, you still have time to correct excess Roth IRA contributions. You can withdraw them within six months after the due date for your return by filing an amended tax return. Additionally, you can apply the excess contributions from one year to a later year, as long as they don't exceed your maximum allowable limit for the future year. Your account custodian can calculate the exact amount you need to withdraw or apply to a future year and make sure the transaction is completed on time. If you fail to move funds to a future year or miss the deadline to make a withdrawal, you'll be subject to a 6% tax on excess contributions in your Roth IRA. Congratulations to Monica for her upcoming wedding. Being ineligible to contribute to a Roth IRA doesn't change her account in any way. She can keep it indefinitely and buy and sell the investments held in the account as she likes. She just can't make any new contributions. And if the IRS changes the rules and allows higher Roth IRA income limits, or if Monica's household income decreases, she may be eligible to make contributions again in the future. But don't stop investing just because you become ineligible to contribute to a Roth IRA. There are too many great benefits that you'll be missing. Instead, put your money in a retirement plan at work, a traditional IRA, or a retirement account for the self-employed if you work for yourself. I'm glad you're listening. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to our richer life. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast, where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify. Because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today.