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Married filing jointly vs separately for Roth IRA

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  • Married filing jointly vs separately for Roth IRA

    My wife and I got married this year and I’m struggling to figure out if married filing jointly vs separately would make more sense.

    I’m a PGY2 with an income of $61,000 and $300,000 med school debt.

    Wife makes $60,000 and has ~$50,000 to pay on her student loans (I think $30k are parent plus loans).

    We also bought a house in 2020 and still owe $240k on it but it’s all in my name. We have no kids but maybe will in 2022.

    I haven’t made any payments on the student loans yet thanks to covid and 0% interest and these $0 payments counting towards the 120 but I know I will have to start paying back soon. I consolidated my loans as soon as I could last year and applied for PSLF and the REPAYE plan. I believe I have 8 qualifying payments so far.

    We’ve also contributed only $1,000 each to our separate Roth IRA accounts on Fidelity so far this year but want to max it out, but having been putting it off due to this conundrum. I know that filing jointly won’t affect us contributing to the Roth but if we file separately then we can’t contribute anything. The problem with filing jointly is that it would make my monthly student loan payment a lot more expensive than if we filed separately. (~$200/mo to around $600/mo).

    The part I’m trying to figure out is if maxing out our Roth IRA is worth having the higher monthly payment during residency? Especially if I'm considering PSLF.

    Is doing a back door roth an option if we file separately to keep that monthly payment low?

  • #2
    Yes you can contribute to the bdIRA if you file separately.

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    • #3
      You are on the right track and
      pierre
      Physician
      pierre is correct. In fact, anyone filing separately is almost guaranteed to need to use the back door b/c direct contribution to a Roth phases out from $0 - $10k of income when you file separately.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Since posting this question student loan payments have now been postponed to at least Jan 2022. So would it make sense to file jointly and contribute the max towards the regular Roth IRA this year? Would that have any implications for paying back student loans next year when they would presumably start again?

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        • #5
          Originally posted by PatagoniaSweaterInvestor View Post
          Since posting this question student loan payments have now been postponed to at least Jan 2022. So would it make sense to file jointly and contribute the max towards the regular Roth IRA this year? Would that have any implications for paying back student loans next year when they would presumably start again?
          1. Possibly
          2. I don’t know, maybe Andrew or Sergio will answer
          jfoxcpacfp
          Moderator
          Last edited by jfoxcpacfp; 08-14-2021, 05:30 AM. Reason: Removed extraneous words.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Originally posted by PatagoniaSweaterInvestor View Post
            Since posting this question student loan payments have now been postponed to at least Jan 2022. So would it make sense to file jointly and contribute the max towards the regular Roth IRA this year? Would that have any implications for paying back student loans next year when they would presumably start again?
            It depends on how much more you would pay in taxes by married filing separately (MFS). By MFS you generally end up paying more in tax than MFJ. But MFS would allow you to have smaller payments as you indicated above. IF you switch your repayment plan from REPAYE to PAYE or IBR.

            REPAYE always looks at household income when calculating your student loan payment EVEN if you MFS. PAYE and IBR would exclude spouse income when MFS.

            The payments you make in 2022 will look at your last tax return filed which would be 2020 if recertify income before March or 2021 if you file taxes before you recertify.

            If you save ~$400 p/month in student loan payments and $4,800 p/yr it probably would make sense to enroll in PAYE and MFS. Your tax penalty by MFS wouldn't be very high since your income is about the same as your wife. Tax penalty would increase when you become attending as the difference in income rises significantly.

            Contributing to a pre-tax account such as your employers 403b/401k, trad IRA, or HSA would allow you to reduce your student loan payments as well.

            Here's a post I wrote on this topic
            Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

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