Roth IRA: Married Filing Separately

[Guest richard_f_r]

My wife and I run separate businesses (corporation and partnership respectively). We file separately to keep things neat even though we pay more in taxes.

We are not permitted to convert our IRAs to Roth IRAs and ineligible for contributions since we each make over $10,000.

What justification did Congress have for precluding us from using Roth IRAs?

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[John G]

I imagine that 10,ooo is a typo and you mean $100,000 which is the conversion income threshold.

The income threshold for OPENING a Roth is totally separate issue from the threshold for conversion.

Self employed and business owners have a wide range of retirement planning options that the ordinary salaried Joe does not get. Keoghs and pension/profit sharing plans which often allow a much larger set aside, sometimes 25-30% of income. If you are not aware of some of these options, you need to sit down with your accountant.

Do you really think Congress needs a justification for making all the rules? Unfortunately, there are too many folks in our society that think that people who are successful, or well educated, or run businesses are the "bad guys". I have a lot of trouble understanding the public policy basis for the various eligibility issues. If a Roth is good for someone making 130K, why is it bad for someone making 170K? Why is conversion eligibility different from standard contribution? Why do married filing separately get the shaft? So many questions, so little time.

Perhaps you should send an email expressing your views to the Pres, and your Senator/congressman. You might want to add a note on the recent legislation to eliminate or soften the estate taxes. (Don't get me started on that issue!) You can send a basic email to virtually every key elected offical in about an hour.

[Guest richard_f_r]

John G

Thanks for the response.

The 10,000 is NOT a typo - that's why it is so maddening.

Paraphrasing Form 5305-RA, Article II (1): contribution is phased out between $0 and $10,000 for a married depositor who files separately AND the custodian will not accept IRA conversions if the depositor is married and files a separate return.

My company does have combined money purchase and profit sharing defined contribution qualified plans with annual contributions of 10% and 15% respectively. I'm always looking for more ways to save, esp. pretax monies.

I twice sent detailed e-mails to both my Senators and my Congresswoman as well as Senator Roth. Nine months later one of my Senators responded with a nonsense letter which failed to address my concerns.

I agree with your comments about the general lack of a rational basis for rules but this seems particularly harsh.

Dick

[John G]

Whoops, I missed the comment that you were filing separate tax returns. Yes, you are right 10K is the number. My guess is that they didn't want couples that both work to split their income, but the actual 10K rule seems an excessive constraint. In earlier post, a married living separately female was overwhelmed to discover that her brief marriage was hanging over her future financial decisions. Falls under that big heading of life is often unfair.

One obvious option is to file a joint return if you are eligible at the higher income thresholds.