Why Don’t I Qualify for a Roth IRA?

Posted by in Articles, personal finance | 6 comments

Nothing is for sure except...you know what!

Nothing is for sure except...you know what!

I’d love to say, “April Fool’s,” but I can’t! With all the retirement articles and discussions going on at Daniel’s Sweating the Big Stuff, I decided to get serious about researching my retirement options. I really like the benefits of an IRA, preferably a Roth IRA (it seems like a more flexible option for me.) However, after doing my homework and selecting the financial institution with whom I’d like to open an account, USAA, I found out I’m ineligible to open one (at least right now.) Here’s why; to open a Roth IRA, there are specific tax filing categories you must fit into:

  • Category A: Single filer claiming you made no more than $116,000 for the year
  • Category B: Married filing jointly claiming you made no more than $169,000 for the year
  • Category C: Married filing separately claiming you made between $0 and $10,000 for the entire year

Guess which category my husband and I fell into last tax season? Bingo! Category C: married filing separately (and we made more than the cap of $10,000). There are a few reasons why we have filed this way for the past few years, one of the reasons is partly due to owning our own business. However, in order for us to be eligible to open an IRA or Roth IRA, we must change our tax filing status. This year, after doing multiple calculations on our taxes, I realized we can file jointly without injuring ourselves too much. This means, within the next few weeks I should be able to open an IRA.

Once our taxes are processed, I am still choosing USAA for our IRA. They have a zero minimum balance to open one, but require a direct monthly debit to keep the fees minimal. I’ve been a member of USAA for years, I pay our renter’s insurance through them, and know they are a very reputable company. Hopefully this IRA fiasco will be resolved by the end of April, I’d like to get a jump on this year’s maximum IRA contribution limits!

Have any of you had this problem of ineligibility, married filing separately? Do you make too much for a Roth and have a traditional IRA instead? Are you able to max out your contributions every year?

6 Comments

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  1. Daniel

    Lol I like the comic. I also love reading about retirement, which is why I’ve enjoyed the guest posts on Monday and Tuesday so much. Plus the conversation in the comments was fantastic.

    I vaguely remember reading about category C, never thinking that it would actually happen! I figured that if you wanted to contribute, people would avoid that choice. But I didn’t think that it was a little more complicated or that people would only take action AFTER filing taxes.

    I’m glad you decided to switch things up. I LOVE Roth IRAs, so I’m very excited for you. Keep us updated!
    .-= Daniel´s last blog ..Squeezing More Return Out of Your Retirement Account =-.

    • Little House

      @Daniel – Your investing articles is what really made me do more research and that’s when I found out our tax filing status limited our retirement options. I should be able to open a Roth by the end of April! :)

  2. LeanLifeCoach

    Owning your own business though you have access to other and more lucrative retirement options, don’t you? I don’t have the luxury so I don’t have details but can’t you open a SEP IRA and stash even more cash than us employed bums?
    .-= LeanLifeCoach´s last blog ..What Sacrifices Are You Willing To Make? =-.

    • Little House

      @Lean Life Coach – Someone else mentioned a SEP to me and I haven’t yet investigated this option. USAA, the company I want to open a Roth with, also offers this type of account. I think I should do a little more homework on this to see if maybe it would be a better investment for us. Thanks for mentioning it to me again. (I’m one of these people who need to be knocked in the head several times before I move forward with something. The more I hear from others about a SEP, the more likely I’ll research it!)

  3. Financial Samurai

    For the past 10 years, I’ve been inelgible to contribute to a ROTH, or normal IRA due to limits. I’m also not allowed to deduct my education interest from my income. Do I feel slighted? A little bit, but it comes with making a decent income.

    What I can’t stand is not getting equal rights for donating to charity. Now that’s infuriating. I’ve responded to your excellent comment btw.

    Thn,

    Sam
    .-= Financial Samurai´s last blog ..Why Are President Obama And The Democrats Against Charity? =-.

    • Little House

      @Financial Samurai – Are you eligible for a 401(k) plan at least? What other investments are you allowed? I would be a little po’d if my income was too high for many traditional retirement funds. However, I’m guessing you have a hefty savings account to make up for it :)~

      And thank you for your response to my comment. I think sometimes people forget where donations go!

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