Got married in December. Can I make Roth IRA contribution?

[Guest JasonMC]

Please help me answer the following question:

An individual makes only $40,000 in 2001. On 12/15/01, she gets married and files a joint return for 2001 with earned income of $200,000 ($40k from her + $160k from new spouse) Can she make a Roth IRA contribution for 2001 because she was single most of the year and only made $40k? Or because she was married by 12/31/01 does that put her over the limit ($160k) for making a contribution? Thanks.

[david rigby]

Try page 10 of IRS publication 590.

http://www.irs.gov/pub/irs-pdf/p590.pdf

[John G]

Bad news: you are over the Roth income limit as your tax status is determined not on percentage basis but on the last day of the year. Married filing jointly has a max income of 160k. Married filing separately does not help you either.

Good news: with that combined income you are in about the top 1% of all US families. Perhaps you can reach your goals within corporate plans like 401k or 403b. You should consult a tax specialist or accountant who can give you some ideas on investment planning. You would be a very wise couple if you could salt away 20% of your annual income.

Some suggestions: to reduce annual tax bite, consider either buy and hold long term individual stocks, but a tax managed mutual fund (they sell losers to erase capital gains), or and index fund (which has little capital gains because of very little turnover). You have a lot more options with things like pension/profit sharing plans if either of you own a business.

Good luck with you new married life.