Confused about Traditional IRA, MAGI, and AGI

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Topic Author
Megasilver
Posts: 6
Joined: Fri Sep 23, 2016 12:11 pm

Confused about Traditional IRA, MAGI, and AGI

Post by Megasilver » Thu Oct 06, 2016 3:08 pm

So in the past few years I've always contributed to a Roth IRA because I thought I was ineligible for a traditional IRA. I wanted to get some second opinions and make sure that I'm correct. If I could contribute to a traditional IRA, I would rather do that I think.


Filing Status: Married
Income: total 185k (145k+40K)

As I under stand this IRS document,

https://www.irs.gov/retirement-plans/pl ... an-at-work

Traditional IRA's go off your MAGI, which is your AGI with a few things added back in.

I tried to look exactly what our AGI will be this year, but I am not sure.

2x 401k= 36,000
1X HSA= 3,350
Pension?= 4,000 (my wife has a mandatory pension of 10% of her salary)
Health insurance premiums?= I'm not sure if these don't count on AGI, could be around $3000 per year.

So 185,000-36,000-3,350-4,000-3000= 133,650

But for fully deductible Traditional IRA, MAGI needs to be less than 98k. Does the standard deduction count for AGI? Anything else I'm missing that could help reach the lower AGI?

Alan S.
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Location: Prescott, AZ

Re: Confused about Traditional IRA, MAGI, and AGI

Post by Alan S. » Thu Oct 06, 2016 3:30 pm

Standard or itemized deductions do not reduce MAGI. Therefore, you are pretty far over the limit even though pre tax health premiums are not included in your AGI or MAGI.

But these MAGI limits do not limit your IRA contributions, just your deduction of the contribution. Since you cannot deduct TIRA contributions, you might consider Roth contributions since your joint MAGI is not too high for Roth contributions. If you have heard about back door Roth contributions, you do not need to consider that as long as you qualify for direct Roth contributions.

But if you are just looking for an IRA deduction, your MAGI is well over the limit. Even if you had a large capital loss, that would only reduce MAGI by 3k after offsetting other gains.

You might consider the Roth contribution for each of you because if you keep maxing your 401k accounts, you will end up with large RMDs in retirement and having some tax diversification from a Roth IRA might be a wise move as there are no RMDs for a Roth IRA and all earnings will be tax free once your Roth is qualified.

lemonPepper
Posts: 89
Joined: Wed Feb 18, 2015 7:43 pm

Re: Confused about Traditional IRA, MAGI, and AGI

Post by lemonPepper » Thu Oct 06, 2016 3:52 pm

I have a similar question. I'm also considering a Roth converter for a part of my 401k with former employer.

Is there a software that helps you calculated how much roth conversion you should do to hit your limit?

In our case,

Gross income: 215
capital gains: 10k
child: one
regular 401k contributions: ~ 20k
roth 401k contributions: 16k

we want to do non deductible to roth ira conversion as well as convert a part of my old 401k

Topic Author
Megasilver
Posts: 6
Joined: Fri Sep 23, 2016 12:11 pm

Re: Confused about Traditional IRA, MAGI, and AGI

Post by Megasilver » Thu Oct 06, 2016 4:09 pm

Alan S. wrote:Standard or itemized deductions do not reduce MAGI. Therefore, you are pretty far over the limit even though pre tax health premiums are not included in your AGI or MAGI.

But these MAGI limits do not limit your IRA contributions, just your deduction of the contribution. Since you cannot deduct TIRA contributions, you might consider Roth contributions since your joint MAGI is not too high for Roth contributions. If you have heard about back door Roth contributions, you do not need to consider that as long as you qualify for direct Roth contributions.

But if you are just looking for an IRA deduction, your MAGI is well over the limit. Even if you had a large capital loss, that would only reduce MAGI by 3k after offsetting other gains.

You might consider the Roth contribution for each of you because if you keep maxing your 401k accounts, you will end up with large RMDs in retirement and having some tax diversification from a Roth IRA might be a wise move as there are no RMDs for a Roth IRA and all earnings will be tax free once your Roth is qualified.

Thank you for the information. Good to know that the standard deduction doesn't reduce your MAGI for the IRA. We have been just doing Roth IRA's, since our income is within the limit for them.

I guess the thing about the RMD's is a positive with having at least some assets in a Roth account.

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grabiner
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Re: Confused about Traditional IRA, MAGI, and AGI

Post by grabiner » Thu Oct 06, 2016 8:53 pm

lemonPepper wrote:I have a similar question. I'm also considering a Roth converter for a part of my 401k with former employer.

Is there a software that helps you calculated how much roth conversion you should do to hit your limit?
You can use your regular tax software. If you are trying to convert up to the top of the 15% tax bracket, look at the difference between your taxable income and the top of the 15% bracket (as listed on the tax rate schedule).

Note that if you convert too much in 2016, you can recharacterize part of the conversion (undoing it) through October 15, 2017 to get to the right level. You might also want do this if you hit the phase-out of some other tax benefit.
Wiki David Grabiner

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