Modified Adjusted Gross Income?

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Topic Author
baseballcb95
Posts: 17
Joined: Mon Dec 03, 2012 5:12 pm

Modified Adjusted Gross Income?

Post by baseballcb95 »

Hey, quick question everyone..

I am 17 years old and trying to max out my IRA (for as much as I can given my earnings)... If I made $4,713.79 in 2012 before taxes, can I contribute that full amount to my roth IRA? I already put 4,000 in but I closed out a few other things and have extra money I would like to add to it. My net pay for the year is $4,183.42 but I will be getting some income tax refunded (200-300$) after filing my taxes.

I would like to know the max that i can contribute for 2012...

A) $4,713.79 (The full amount I made without taking out taxes)

B) $4,183.42 (My pre filing tax take home pay (includes SS, Medicare and Income))

C) ~$4,400.00 (My post filing tax pay (includes SS and Medicare)

THANKS
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kupo
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Re: Modified Adjusted Gross Income?

Post by kupo »

You have until April to contribute $5,000 post-tax.. so keep contributing until you've maxed out that 5k! Wish I could've started at 17...
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damjam
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Re: Modified Adjusted Gross Income?

Post by damjam »

kupo wrote:You have until April to contribute $5,000 post-tax.. so keep contributing until you've maxed out that 5k! Wish I could've started at 17...
The OP can not contribute more than his compensation for the year.
IRS wrote:For 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
$5,000 ($6,000 if you’re age 50 or older), or
your taxable compensation for the year.
The question is what qualifies as compensation.
I need to research to be sure.
Last edited by damjam on Tue Feb 05, 2013 6:15 pm, edited 2 times in total.
Topic Author
baseballcb95
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Re: Modified Adjusted Gross Income?

Post by baseballcb95 »

kupo wrote:You have until April to contribute $5,000 post-tax.. so keep contributing until you've maxed out that 5k! Wish I could've started at 17...
I think you misunderstood or I wasn't clear... As I understand it, I can contribute $5,000 or as much money as I make up until $5,000 for the 2012 tax year before I file my taxes. My income for 2012 is set in stone and it is less than $5,000. I will contribute as much as I can for 2013 as well but that is not what I am worried about. I want to know what the maximum I can contribute for 2012 based on those 3 different numbers in my original post.
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damjam
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Re: Modified Adjusted Gross Income?

Post by damjam »

IRS wrote: Compensation for Purposes of an IRA includes wages, salaries, etc.
I believe the answer is:
A) $4,713.79 (The full amount I made without taking out taxes).

Let's see if anyone disagrees.
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kupo
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Re: Modified Adjusted Gross Income?

Post by kupo »

A seems correct... "the lesser of $5000 or taxable compensation" according to the IRS
Alan S.
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Re: Modified Adjusted Gross Income?

Post by Alan S. »

4,714. If you are paid on a W-2 it is the Box 1 amount. Your max contribution cannot exceed your earned income as reflected in Box 1.
Topic Author
baseballcb95
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Joined: Mon Dec 03, 2012 5:12 pm

Re: Modified Adjusted Gross Income?

Post by baseballcb95 »

Thanks for the quick replies.. Hopefully I can get a few more to be sure but you guys seem right and it was my gut instinct anyways.
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damjam
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Re: Modified Adjusted Gross Income?

Post by damjam »

Just so you know, Alan S. is the man for this type of question.
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nisiprius
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Re: Modified Adjusted Gross Income?

Post by nisiprius »

This is a very good example of the kind of question that, in my experience, the IRS does a good job of answering.

Try the experiment of calling 1-800-829-1040 and see what happens. Usually I wait less than five minutes to talk to someone I call the "triage nurse," who decides who should handle the call, and then I get put on hold for another short wait. If you do try it, let us know what happens. I don't think you even need to give your name unless you want to have them look up your records.

Alan S's answer sounds good, so if you have your W-2, have it in front of you when you call, and use his answer to phrase your question. "I have a W-2 that shows $4714 in box 1," or "I expect my W-2 to show $4714 in box 1."

I predict that they will give you a useful answer and will probably tell you what IRS publication has the rules or the flowchart or the worksheet in it that gives the answer.

The IRS is not technically bound by what their reps say, but they talk to a lot of taxpayers and are knowledgeable about, you know, the ten top things that people misunderstand or goof up on.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
FillorKill
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Re: Modified Adjusted Gross Income?

Post by FillorKill »

baseballcb95 wrote:Thanks for the quick replies.. Hopefully I can get a few more to be sure but you guys seem right and it was my gut instinct anyways.
Don't take our word for it. Download and read IRS PUB 590 [link below]

http://www.irs.gov/pub/irs-pdf/p590.pdf
Alan S.
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Re: Modified Adjusted Gross Income?

Post by Alan S. »

From p 8 of Pub 590, note that there are several forms of income that qualify. But with respect to wages, the following appears:
Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for provid-ing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compen-sation for IRA purposes only if shown in box 1 of Form W-2.
NYBoglehead
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Re: Modified Adjusted Gross Income?

Post by NYBoglehead »

Alan S. wrote:4,714. If you are paid on a W-2 it is the Box 1 amount. Your max contribution cannot exceed your earned income as reflected in Box 1.
This is correct. And by the way, you are awesome! $4,714 at 17 years old in a Roth IRA! If more people had the foresight that you did we'd all be in much better shape. Just be sure to steer clear of debt accumulation when/if you go to college and keep on contributing, I'd say you are going to be a candidate for early retirement.
gerntz
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Re: Modified Adjusted Gross Income?

Post by gerntz »

damjam wrote:
kupo wrote:You have until April to contribute $5,000 post-tax.. so keep contributing until you've maxed out that 5k! Wish I could've started at 17...
The OP can not contribute more than his taxable income for the year.
IRS wrote:For 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
$5,000 ($6,000 if you’re age 50 or older), or
your taxable compensation for the year.
The question is what qualifies as compensation.
I need to research to be sure.
Well, to be clear, I think the limit is taxable "compensation" - meaning income before deductions & exemptions - not taxable "income" - which is the number after deductions & exemptions that your income tax is based on. No?
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damjam
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Re: Modified Adjusted Gross Income?

Post by damjam »

gerntz wrote:
damjam wrote:
kupo wrote:You have until April to contribute $5,000 post-tax.. so keep contributing until you've maxed out that 5k! Wish I could've started at 17...
The OP can not contribute more than his taxable income for the year.
IRS wrote:For 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
$5,000 ($6,000 if you’re age 50 or older), or
your taxable compensation for the year.
The question is what qualifies as compensation.
I need to research to be sure.
Well, to be clear, I think the limit is taxable "compensation" - meaning income before deductions & exemptions - not taxable "income" - which is the number after deductions & exemptions that your income tax is based on. No?
Quite right, I was fast and loose with terms and I'll edit the original post to make the correction.
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