Do I make too much for a Roth IRA?

 Yes, friends, I have crossed over another financial milestone. Apparently my adjusted gross income is just shy of the MAGI limit to contribute to an Roth IRA. Mind you I'd checked periodically throughout the year when it would occur to me that I might make too much.

I didn't really come close last year (2020), but given the raise and bonus, I thought about it. There was a chance this 2021 tax year would be my last year to qualify, but nope. 

According to CashApp Tax (formerly CreditKarma Tax), I could only contribute $20 this year.

I got hung up on the screen for so long. I was convinced because it was a new platform that there was a glitch or something. Mind you, I was already annoyed for a lot of reasons so I was not willing to give the app the benefit of the doubt. 

But after inputting, re-inputting, and trying new numbers, I finally progressed through the screens to the Review. And yep, I was just shy of $140k for adjusted gross income.

How did I get there unknowingly. Well my W2 only had me at about $112k, so that's why I thought I'd be safe. But alas, there was Aunty MERJ's secret pension + bank bonuses+ and I guess I make taxable income in my taxable brokerage accounts - who knew!

All that together in many increments put me over the edge. 

At first I was going to let it go. It was a $360 penalty but I figured for the taxable gains it'd be worth it and it'd be worth not having to hassle to correct the mistake. But alas! According to the internet, you have to pay the penalty on that every year. I actually don't know, now that I think about it, how the IRS would know that the excess was there every year.

I guess my logical brain didn't choose to find out.

So I took a few different paths. The first path I found on a quick Google search was just to take the money out. That was at least an hour or two of reading and clicking and thinking. I'd filled out the form with my broker. After hemming and hawing, I decided I would pull the money out and keep it in a Cash account until I figured out whether I wanted to put in a new IRA account or just add it to my taxable account. Keeping it in a tax-advantaged account seemed like the more aligned strategy but I wasn't sure I wanted to open a traditional IRA account and have just one more account to maintain and or have to report.

That was the reason for the holding pattern.

Then shortly after that foray, I read further down in the article (yes, read the whole online article!!) that you could recharacterize the excess contributions. Yes, that! That seemed more like a one-step shop. So I went with that and ultimately ended up opening a new traditional IRA account to keep the process as simple as possible. But I was able to complete the form online and it should be done in 3 business days. Non-WAYMISH. (waymish = why are you making it so hard)

But then I got lost in another rabbit hole of trying to figure out how to report this on my taxes. I think the app did it for me. The actual IRS instructions say you're supposed to attach a statement saying you did the recharacterization, but I didn't see a penalty for not doing that. I downloaded as many confirmations as I could (just in case) but because it was an online form that I didn't pay too close of attention to, I don't have the details of the actual request. 

Either way, the money move was simple enough so hopefully it doesn't trigger any red flags. It seems like it's a pretty common thing because it was specified in the Form instructions. 

I think in general because I was vacillating so much with opening yet another account, I don't see myself contributing to a traditional IRA in the next couple of years. It's just not part of my mental plan. My company offers after-tax 401k contributions so I will try to utilize that for any additional tax optimizations.

I won't be able to do lump sums like you can with an external broker but I typically like to make a savings plan at the beginning of the year anyway. Anyway, these things can be finagled.

So there we have it folks. Taxes pretty much done. I like to sleep on it. I also want to get the Recharacterization confirmation as well.

HR has sent me like 5 emails asking for my name change document. I'm like don't tempt me! My boss has scheduled our Reward discussion for March 7, so that was exciting! I wanted to add, I hope you ran it by my previous boss. My biggest fear is that I'll get something basic since I was mostly in training since I joined the new team.

In other news, I finally got the iPhone protective case so I can start using that device now instead of my old $10 LG phone. I miss the LG phone already. I finally got used to it.

I don't have any contacts in the new iPhone and I keep getting other people's calls. That def doesn't happen with Google Voice numbers!

Taxes took me pretty much all day. I always used to think about doing tax prep on the side, but today I think that would be really boring.

I've been eating donuts all day so my eyes are getting heavy.

Oh I also had to remember to quickly cancel the auto-deposits I was doing to this year's Roth IRA. Luckily, the schedule was more of a place holder while I hoard cash for FIRE Year 1, so only $20 had made it in. I might just leave that or take it out by the end of the year. I'm going to wait until all the taxes are done so there's no confusion.

I feel like March is going to be a lot of confusion. I hope all good outcomes though.