This is a reminder that October 15th is quickly approaching, and with it, the deadline to recharacterize assets to avoid potentially costly tax penalties.
In brief, Roth IRAs are a valuable tool for savvy investors to reduce long-term tax liability on their retirement savings. However, many of our client relationships find that as their earnings increase (through salary, promotion, job changes, overtime, retirement, etc.), they become “ineligible” or “phased out” when it comes to contributing to Roth IRAs.
The calculation is based upon Modified Adjusted Gross Income (MAGI), and the limits can be found on the IRS website: https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2024
A popular workaround is to use non-deductible IRAs (contributions are not limited by income) and possible conversion to Roth, a two-step process to effectively side-step income limitations for many investors. Because time is of the essence, please take a close look at your tax documents for 2024 and consult with your tax professional to determine if you were eligible to contribute to a Roth IRA during the 2024 tax year. The Modified Adjusted Gross Income phaseout limits for 2024 are as follows:
- Single tax filer with income $150K+
- Married filing separately with income $10K+
- Married filing jointly with income $236K+
After consulting with your tax professional, if you determine you are ineligible to make Roth IRA contributions, please contact us ASAP (no later than the close of business on 10/14). We can recharacterize if we act quickly and before the 10/15 deadline.