Can ROTH Conversion prevent ROTH IRA Contribution

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mikemartin82
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Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

My spouse and I contribute $7K each to Roth IRAs each year. Lets say our AGI is $150K. If we convert $100K of our traditional IRA to Roth, I guess that would put our MAGI at $250K. Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
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arcticpineapplecorp.
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by arcticpineapplecorp. »

mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm My spouse and I contribute $7K each to Roth IRAs each year. Lets say our AGI is $150K. If we convert $100K of our traditional IRA to Roth, I guess that would put our MAGI at $250K. Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
the $7k contributions don't affect your MAGI (doesn't add or reduce). The $7k (or $14k) is part of your income that's reportable towards your MAGI.

Contributions are after tax, so just count your MAGI regardless of the contributions to Roth IRA. If your MAGI is $250k then you subtract your standard deduction (or itimized deductions if greater) and pay the tax on what's left.

As an example, if I earn $80,000 gross (let's not get into medical deductions and just assume $80k is what's on box 1 of my w-2, and am single) and contribute $7000 to Roth IRA, I'm still taxed on $80,000 minus my standard deduction. The $7k contribution to Roth didn't affect my taxable income at all.

if you're going to owe tax due to a conversion and it's going to be more than $1000 (likely at $100k conversion) you will need to file estimated taxes to avoid underpayment penalty.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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mikemartin82
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

Thanks artic, I think I did better with my "subject" than I did with my question. What I really meant to ask is... are we still eligible to contribute to a Roth IRA when we exceed the $206K MAGI limit (even when a conversion caused it to exceed the limit) ?
diy60
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by diy60 »

mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
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mikemartin82
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
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Duckie
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by Duckie »

mikemartin82 wrote:My spouse and I contribute $7K each to Roth IRAs each year. Lets say our AGI is $150K. If we convert $100K of our traditional IRA to Roth, I guess that would put our MAGI at $250K. Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
No. There are several kinds of MAGI. Although the $100K conversion adds to your taxable MAGI, it does not count toward your direct Roth IRA contribution MAGI.
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mikemartin82
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

Duckie wrote: Wed Sep 16, 2020 7:51 pm
mikemartin82 wrote:My spouse and I contribute $7K each to Roth IRAs each year. Lets say our AGI is $150K. If we convert $100K of our traditional IRA to Roth, I guess that would put our MAGI at $250K. Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
No. There are several kinds of MAGI. Although the $100K conversion adds to your taxable MAGI, it does not count toward your direct Roth IRA contribution MAGI.
Great. Thanks Duckie. :happy
JediMisty
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by JediMisty »

mikemartin82 wrote: Wed Sep 16, 2020 7:51 pm
diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
I think that a Roth conversion would increase your MAGI for the purposes of the Roth contribution limit. Since another poster stated otherwise, I'm going to use my turbotax program to mock up an example to test my belief, if you'd like me to.
MrJedi
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by MrJedi »

mikemartin82 wrote: Wed Sep 16, 2020 7:51 pm
diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
There are different definitions of MAGI depending on what you are calculating it for.

I think the flavor you are looking for is defined here:
https://www.irs.gov/publications/p590a# ... k100025085

You can see for this Roth IRA flavor of MAGI, Roth conversions resulting in income get subtracted back out.
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mikemartin82
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

MrJedi wrote: Wed Sep 16, 2020 7:57 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:51 pm
diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
There are different definitions of MAGI depending on what you are calculating it for.

I think the flavor you are looking for is defined here:
https://www.irs.gov/publications/p590a# ... k100025085

You can see for this Roth IRA flavor of MAGI, Roth conversions resulting in income get subtracted back out.
Awesome. That nailed it for me. Thanks MrJedi! :D
Topic Author
mikemartin82
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by mikemartin82 »

JediMisty wrote: Wed Sep 16, 2020 7:57 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:51 pm
diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
I think that a Roth conversion would increase your MAGI for the purposes of the Roth contribution limit. Since another poster stated otherwise, I'm going to use my turbotax program to mock up an example to test my belief, if you'd like me to.
Thanks JediMisty, the link MrJedi provided was definitive for me. I appreciate the effort that everyone goes to here at bogleheads to help everyone!
JediMisty
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by JediMisty »

mikemartin82 wrote: Wed Sep 16, 2020 8:05 pm
JediMisty wrote: Wed Sep 16, 2020 7:57 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:51 pm
diy60 wrote: Wed Sep 16, 2020 7:46 pm
mikemartin82 wrote: Wed Sep 16, 2020 7:30 pm Does that conversion affect the $7K each that we contribute, because now our MAGI is greater than $206K ?
It's not immediately clear exactly what you are asking. But just in case you are asking about Roth contribution ineligibility, conversions to Roth do not count towards Roth contribution limits.
Thanks diy, that was what I was asking. I did a lot of searching, but couldn't find the answer. It seems like it wouldn't, but then again, Roth conversions do count toward MAGI and regular Roth contributions are not eligible if MAGI exceeds $206K for joint returns. Hence my question.
I think that a Roth conversion would increase your MAGI for the purposes of the Roth contribution limit. Since another poster stated otherwise, I'm going to use my turbotax program to mock up an example to test my belief, if you'd like me to.
Thanks JediMisty, the link MrJedi provided was definitive for me. I appreciate the effort that everyone goes to here at bogleheads to help everyone!
This is very good to know. I hadn't considered making a Roth conversion is my first (partial) year I'm retired while I still have earned income that would also allow for a Roth contribution. But there's the proof that it's possible if I want to do it. Interesting! Since 2021 may be that year, I'll crunch some numbers to see if it makes sense....thank you for raising the question!
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FiveK
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by FiveK »

Already answered here, but in general one can use the MAGI - Bogleheads wiki to find the definition of interest.
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FIREchief
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Re: Can ROTH Conversion prevent ROTH IRA Contribution

Post by FIREchief »

There is a worksheet in the 1040 instructions that backs out the Roth conversions.
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