Nagisan t1_jech112 wrote on March 31, 2023 at 12:22 AM

> but what do I do with money that were invested for the past three months

Is this increase putting you above the max limit, or just reducing your direct contributions?

If it's just reducing your contribution limit you might not have to do anything with your prior contributions (depends on how much you've contributed and how much your limit is reduced).

If the increase brings your limit down to $0, you'll have to recharacterize your Roth into Traditional, at which point you can just convert them to Roth again (like the backdoor Roth process).

s0lwind OP t1_jechzpy wrote on March 31, 2023 at 12:29 AM

Got it thank you! It's putting me above 228,000 limit, so I guess recharacterization is the way.

Nagisan t1_jecjph1 wrote on March 31, 2023 at 12:41 AM

Don't forget it's your MAGI, not just your gross. So if your gross is say, $230k, and you're putting $20k into a Traditional 401k, your MAGI is going to be $210k or lower, which means no Roth IRA limit (assuming MFJ).

Otherwise yeah, re-characterization will allow you to fix it - just a bit more paperwork/process than normal.

s0lwind OP t1_jecvdh5 wrote on March 31, 2023 at 2:11 AM

Thank you for clarifying, didn’t realize that. Your example is pretty close to my numbers, so potentially I should still qualify. Just need to double check to be 100% sure. Appreciate your help.

s0lwind OP t1_jecwfwq wrote on March 31, 2023 at 2:20 AM

Just a follow up question. I have an active 10b5 plan (autosell stocks on vesting date), so there is a chance my MAGI would actually pass a limit at some point if stock price get high enough.

Would it make sense to keep my contributions to roth ira, and then just recharacterize if needed before next tax season due?

Nagisan t1_jecwt76 wrote on March 31, 2023 at 2:22 AM

There's no harm in re-characterizing "just in case"...the only downside is you might do so without needing to. There's also no harm in waiting, as long as you do it early enough to complete the re-characterization before Dec 31st 2023 (the conversion back to Roth can happen any time, as long as you don't have pre-tax traditional IRA dollars in the same year - but you do pay taxes on earnings when this happens so it's best to do it ASAP after re-characterization).

Ebes1099 t1_jecjj6o wrote on March 31, 2023 at 12:40 AM

Income limit is also based on modified AGI, so even if your raise is putting your salary above the limit you could still be eligible for Roth contributions.