As my regular readers know, we are a dual income, no kid, couple in Silicon Valley, which has one of the highest costs of living in America. I was flipping through a real estate magazine the other day and a 1000 sq. ft, 3 bed, 1 bathroom, with no updates was going for $700,000 (the average home in my city sells for around $875,000). This would shock most of the country, but it’s common here. It’s so common that companies have adjusted worker wages significantly higher than the rest of the country simply because they have to. If they didn’t, the most talented people would be forced to move away.
In looking at Salary.com, a software engineer with my level of experience in Silicon Valley should be earning a little over $100,000. I’m not going to give away my income, but let’s use that number as a workable number for my income. My wife is a pharmacist with the military. That is a pretty high-paying occupation wherever we choose to live. She receives a number of tax breaks due to her military status. These two high incomes, along with those tax breaks mean that we have a Modified Adjusted Gross Income (MAGI) that is very close to the Roth IRA limit of $166,000 a year.
I am not looking for sympathy, as that would be absurd. Most people would love to have this “problem.” We obviously make a lot of money, but, living here, we pay a lot of it too. The net gain is similar to what it would be if we lived elsewhere. In Iowa, for example, our income and costs would be proportionally adjusted downward, resulting in a MAGI that would surely be beneath the Roth IRA limits.
In effect we are being punished at the Federal level for choosing to live in an area of a high cost of living. In the immortal words of sports statistician Jeff Saragin, “It offends my sense of right and wrong mathematically.” So what’s the fix? The government should simply look at itself and use the data it is already computing for military housing benefits. For example, the data may indicate that the cost of living in New York City is twice as much as living in Iowa. As such, it could simply adjust the Roth IRA limits up for residents in New York City and/or down for residents of Iowa. That’s the fair solution.
What do you think?