When I wrote my Financial Plan 2005, one particular concern I had is whether I would be earning too much to contribute to Roth IRA:
"One important number to study from this tax analysis is the AGI. My projected AGI of $148,028 brings me very close to $150,000, which is the starting point of Roth IRA contribution limit phase-out. To bring my AGI down, I already subscribe to a big FSA contribution and max out 401(k) -- this means I need to plan my capital gains/losses more carefully to avoid triggering this phase-out schedule."
For this very reason, so far this year, I only made a $4,000 contribution to my own Roth IRA account, but didn't make the same contribution to my wife's account. Now that I have more visibility of my 2005 financials, it is time to review this topic again.
Several things have changed since I made the plan for 2005. Specifically:
First, my career at Microsoft has been successful, and I expect to improve over the budgeted job income thanks to extra bonus and salary increases.
Second, as part of the expatriation deal I'm working on, I'm looking at additional allowances for housing and transportation for at least two months of 2005 (and ongoingly in 2006 and 2007). Plus, it is very likely that all the relocation benefits will show up in my W-2 too.
Third, to work on the Hercules' task of moving, and enjoy some happy Seattle summer afternoons, my wife resigned from the job earlier this month. (Read: reduced income.)
Finally, I have to admit PFBlog has some (commercial) success. Though still insignificant compared to my job income, advertising income from various channels has exceeded my original expectation by a few grand.
So, I ran the calculation again, and it turns out my modified AGI, as defined in IRS Pub. 590, would be $158,000 before I add any relocation benefits. The conclusion: I'm pretty much priced out of Roth IRA, which only allows contribution from couples with modified AGI at less than $160,000.
It is time to place a call to Fidelity and discuss how I can pull back some contributions so I don't have to pay the 6% excise tax on over contributed amount.
(P.S. The definition of Modified AGI requires me to add back the foreign earned income. Since I have exhausted tactics like 401(k) contribution and FSA, I hardly have any other ways to bring the modified AGI back to under $160,000.)