The tax bill will be precisely the same, $0 when done properly. You can still do a Backdoor Roth IRA process in these situations where your IRA contribution is either partially or completely deductible. If you live separately and are not covered by a retirement plan at work, you can deduct a traditional IRA contribution no matter your income.
In that case, your ability to contribute directly to a Roth IRA phases out between a MAGI of $125,000-$140,000 in 2021. There is an exception to these rules if you do not actually live with your spouse. Basically, the best option for anyone filing their taxes MFS is the Backdoor Roth IRA process, i.e., an indirect Roth IRA contribution. Both the ability to contribute directly to a Roth IRA and the ability to deduct a traditional IRA contribution if you (or your spouse) are eligible for a retirement plan at work phase out between $0 and $10,000. The contribution and deduction income limits are particularly low if you are filing your taxes Married Filing Separately (MFS). Each spouse reports their Backdoor Roth IRA on their own separate 8606, so the tax return for a married couple doing Backdoor Roth IRAs should always include two form 8606s. So even if the pro-rata rule (discussed below) keeps you from doing the Backdoor Roth IRA, it doesn't necessarily keep your spouse from doing so. Remember that IRA stands for INDIVIDUAL Retirement Arrangement. Tax diversification allows you to determine your own tax rate as a retiree by deciding how much to take from tax-deferred (traditional) accounts and how much from tax-free (Roth) accounts. Not only does this provide an additional $6,000 each ($7,000 for each spouse that is 50+) of tax-protected and (in most states) asset-protected space per tax year, but it allows for more tax diversification in retirement. Married physicians should be using a personal and spousal Roth IRA, and will usually need to fund both indirectly (i.e., through the back door). Thus, their best IRA option is the Backdoor Roth IRA process, i.e., an indirect Roth IRA contribution. Since most readers of this blog have a retirement plan through their job and have (or soon will have) a MAGI over $214,000, they will find that they can neither make direct Roth IRA contributions NOR deduct their traditional IRA contributions. If you have a retirement plan offered to you at work and your MAGI is below $68,000-$78,000 ($109,000-$129,000 Married Filing Jointly) you can deduct your traditional IRA contributions. If your income is below a MAGI of $129,000-$144,000 ($204,000-$214,000 Married Filing Jointly), you can contribute directly to a Roth IRA. Some docs like residents, employee dentists, part-timers, and even some medical attendings in the lower-paying specialties who are married to a non-earner can just contribute to a Roth IRA directly.Īnyone who earns at least $6,000 ($7,000 if 50+) can contribute $6,000 ($7,000 if 50+) to an IRA. Low earner is defined as a Modified Adjusted Gross Income (MAGI) under a phaseout range in 2022 of $129,000-$144,000 ($204,000-$214,000 Married Filing Jointly). Remember that if you are a low earner you can just contribute DIRECTLY to a Roth IRA and skip this Backdoor Roth IRA process. Physician Wellness and Financial Literacy Conference – Park City.Continuing Financial Education – Las Vegas.Financial Wellness and Burnout Prevention for Medical Professionals.
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