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I would like to roll over my wife's 457b retirement account into her Roth IRA in 2017. I understand that the amount in the 457b will be taxed, but does it also count as income that affects the ability to contribute to a Roth IRA? For instance:

  • We live in and are citizens of the United States.
  • We are married filing jointly and are under the age of 50.
  • The 2017 Roth IRA max income limit is $186,000-$196,000.
  • Our annual AGI is $120,000.
  • The 457b account has $80,000.

Is it correct that if we do a 457b to Roth IRA rollover, we will be taxed as if we made $200,000 ($120,000 income + $80,000 457b)?

Also, does it mean that we will no longer be able to contribute the standard $5,500 to our Roth IRAs for 2017 because our income is now $200,000 (which is greater than the Roth IRA max income limit of $196,000)? Or is the rollover not counted as income when looking at eligibility to contribute to a Roth IRA?

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A transfer of funds from a 401(k) or 403)b) or 457 plan into an IRA is a rollover and it does not have the income-limit restrictions that apply to contributions to a Roth IRA. But be aware that a rollover might not be permitted by the 457 plan if your wife is still employed by the same State government (not necessarily in the same department or agency). Most such plans allow rollovers after the employment is terminated or after age 59.5 (or 55 in some cases). See IRS Publication 590a for detailed description of the rules from the IRS perspective and consult the 457 plan's program guide to find out their rules.

With regard to Roth IRA contributions, the restriction is based on the Modified AGI (MAGI) which is obtained by subtracting the rollover amount from your AGI (and adding back in some items such as Traditional IRA contributions and student loan interest etc that you deducted from income in arriving at the standard AGI). So, that $80K rollover amount will not change your status with regard to eligibility to make a Roth IRA contribution; it is not part of the MAGI.

  • Thanks for the response, this was a very helpful answer! – Jeff J Oct 16 '17 at 2:04

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