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Hal

Roth Ira's And 403(b)'s

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Can the 403(b) be used to reduce one’s income so that they are eligible for the full contribution into a ROTH ira? For example, if a person’s gross income is $100,00 and they invest $10,000 into a 403(b), would the IRS consider their income to be only $90,000 in regards to ROTH eligibility?

 

Hal

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Hal, Roth IRA eligibility is based on Modified Adjusted Gross Income, which is your Adjusted Gross Income as shown on your income tax return, modified by adding and subtracting specific items. A complete description can be found in IRS Publication 590 on pages 54-55.

 

Wages that are included in Adjusted Gross Income are those that are taxable for federal income tax purposes. Since salary reduction contributions to a 403(b) reduce taxable income for federal income taxes, Roth eligibility would be based on the net. In your example, the $90,000 would be used. However, keep in mind that other things, such as interest earnings, dividend, etc., have to be added to determine your Adjusted Gross Income.

 

Also, while I'm sure you used $10,000 just as an example, keep in mind that the limit for Roth IRA contributions for 2004 is $3,000 ($3,500 if you're age 50 or older).

 

Hope this helps.

 

 

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