The IRA Phaseout Gap

by Joe on May 3, 2012

In much of the discussion of the Roth IRA, there’s little mention of the  one area where there’s no decision, the Roth is the way to go. It’s the gap between the Traditional IRA phaseout and the Roth phaseout. Let’s look at where, exactly, this occurs in 2012.

  • Single – Traditional IRA Phaseout – Begins at a Modified Adjusted Gross Income (MAGI) of $58,000 and ends at $68,000.
  • Single – Roth IRA Phaseout – Begins at a Modified Adjusted Gross Income (MAGI) of $110,000 and ends at $125,000.
  • Married – Traditional IRA Phaseout – Begins at a Modified Adjusted Gross Income (MAGI) of $92,000 and ends at $112,000.
  • Married – Roth IRA Phaseout – Begins at a Modified Adjusted Gross Income (MAGI) of $173,000 and ends at $183,000.

First note that the traditional phaseout is only for those who are covered by an employer plan such as the 401(k). The difference phaseout ranges for the traditional IRA and Roth IRA create a range where you can’t deduct the traditional IRA, but can still deposit to the Roth. For the married couple, this phaseout is at the top quintile (i.e. 20% of families earn about $92,000 or higher) so while the issue isn’t applicable to everyone, it’s still good to be aware of where the numbers fall and how this might impact you.

Next time – how to Roth even when your income is well above the Roth phaseout limits.

 

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