ROTH IRA cobtribution limits

[vze56v6x]

I was recently laid off in June and started a new job that doesn’t allow 401k contributions until 6 months in, roughly Feb 2025.

I spoke with a financial planner about contributing money somewhere in the meantime, possibly to a Roth IRA.  I did not max out my previous 401k contributions. I was told that if my total modified income for the year was between 230k-240k i could contribute to a Roth IRA but there would be limitations.

I am currently seeking an accountant to speak to but I want to understand how I calculate my modified income and what is a safe contribution amount for the remaining 2024 year if my modified income ends up being less than 230k OR between 230-240k. Should i not even bother contributing to a ROTH ?

I want to put the money I cannot contribute to a 401k yet somewhere where it can go grow even if its not a pretax contribution right now.

I already have a traditional IRA with a very small contribution- about $2k. Given my annual income being over the limit, I cannot take any deductions at tax time, and I am fine with that. Is contributing to a Roth IRA possible or should I contribute to something else?

what is a good source for me to read up on because frankly speaking the financial planner talked in circles and confused me very much.

Still looking for an accountant who can help…..

[tagteam]

I'll page @dmertz. Please check back here later.

[Opus 17]

You can contribute to a traditional IRA no matter what your income is, but whether or not you can deduct the contribution depends on your income, filing status, and job situation.  See here.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...

Whether or not you can contribute to a Roth IRA also depends on your job, filing status and income, info at the same link.

Importantly, your participation may be limited if you "participate" in a retirement plan at work.  You won't be participating in the plan at your new job for 2024 (even though they have a plan, you are not a participant yet), but you don't say if you participated in a retirement plan at your prior job.  Unfortunately, if you participated even for only part of the year, that places you under the "participation" limits for IRA contributions for the whole year.

You sound like a good candidate for a "backdoor Roth IRA."  This is where you make a non-deductible contribution to a traditional IRA, then roll it over to a Roth IRA.  Your non-deductible IRA contribution is not limited by income or filing status, and the rollover is not taxable since the contribution was after-tax in the first place.  The catch is that for this to really work, you must rollover/convert all your balances in traditional IRA accounts.  (And note, if you have more than one IRA account, the balances are added together for this purpose.  You may have multiple accounts, but the IRS considers you to have only one "individual retirement arrangement.")

If your total of all deductible/pre-tax traditional IRA accounts is just $2K, then the tax bill from a Roth conversion won't be too bad, and then you can do the backdoor Roth IRA method each year.  Also importantly, you can do the backdoor Roth up to the full amount even if you max out your 401k contributions, because the two types of plans are controlled by different sections of the tax law and have different limits--one does not limit the other. 

[dmertz]

Your questions are answered in IRS Pub 590-A:

https://www.irs.gov/publications/p590a#en_US_2023_publink1000230981

However, in place of the 2023 limits you'll need to substitute the 2024 limits also mentioned in IRS Pub 590-A:

https://www.irs.gov/publications/p590a#en_US_2023_publink100074297

[vze56v6x]

Thank you 

so I did contribute for the 1st 6 mos ar my old job to a 401k but nowhere near maxed it out.

if i do a backdoor rollver to roth wont i still pay a penalty on the $2k

the financial planner implied i would but how can i figure out what that would be 

[Opus 17]

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@vze56v6x wrote:

Thank you 

so I did contribute for the 1st 6 mos ar my old job to a 401k but nowhere near maxed it out.

if i do a backdoor rollver to roth wont i still pay a penalty on the $2k

the financial planner implied i would but how can i figure out what that would be 

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If you convert the $2K traditional pre-tax IRA to a Roth, you pay income tax, but no additional penalty.  By paying the income tax now, you pay no income tax in the future on the money or the gains, as long as you wait until age 59-1/2 to withdraw it.  (That's $11,000 tax-free in 30 years against $500 today.)

The tax is simply whatever the income tax would be on $2000.  If you are in the $200K range of income, that would be 22% or 24% depending on your marital status, plus 3-13% depending on which state you live in.