Rollover to Roth: incr. MAGI? Can Donation Offset that?

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Poppy
Posts: 17
Joined: Mon Dec 31, 2012 9:52 am

Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by Poppy »

Hi. Does the income from converting a Rollover IRA to a Roth IRA count towards the MAGI income limit of $124K (single) for making a Roth Contribution? (FYI: I have already made my 2020 Roth IRA Contribution. I want to make sure I don’t bump into the $124K MAGI limit if I do a Roth Conversion this year too.) I realize that a Roth Contribution and a Roth Conversion are two separate events.

Also, would establishing a Donor Advised Fund for $5K reduce my MAGI by $5K (and thus potentially offset the Roth Conversion income by $5K?)

Thank you for your advice, and please let me know if I am leaving out any information that may be needed in order to answer this question.
Thank you!
Silk McCue
Posts: 4798
Joined: Thu Feb 25, 2016 7:11 pm

Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by Silk McCue »

Roth conversions do not impact your ability to contribute to a Roth in the same year in respect to MAGI limits. Convert away.

Donating to a DAF or directly to a charity charity can only offset the tax liability on a Roth conversion to the extent that your itemized deductions exceed your standard deduction.

Edit to add: You will find confirmation on the MAGI limits on the Wiki page.

https://www.bogleheads.org/wiki/Roth_IRA

Specifically -

"Contribution Eligibility and Limits
Your ability to contribute to a Roth IRA is limited depending on your filing status and the level of your "modified adjusted gross income". These income limits change year to year due to inflation adjustment. You can find these income limits in IRS Publication 590-A: Roth IRAs Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your tax return modified as follows;


Modified AGI.
1.Subtract the following:
Conversion income. This is any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA.
Minimum required distributions from IRAs, (for conversions only)."
...


Cheers
Last edited by Silk McCue on Wed Sep 16, 2020 1:30 pm, edited 1 time in total.
terran
Posts: 1583
Joined: Sat Jan 10, 2015 10:50 pm

Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by terran »

Yes, a Roth conversion will increase your AGI and according to Worksheet 1-1 in Publication 590-A it will not be subtracted from AGI to arrive at MAGI, so it could put you over the limit for making Roth contributions. See cas's reply below this one. I used the wrong worksheet.

A $5k donor advised fund contribution could reduce your MAGI, but only if you already itemize. If not, then it will only decrease your MAGI to the extent that your new itemized deduction exceed the standard deduction (or not at all if you still take the standard deduction because it continues to be greater than your itemized deductions). Duh, I even got this part wrong. This is taxable income, not MAGI.
Last edited by terran on Thu Sep 17, 2020 12:03 am, edited 3 times in total.
cas
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Joined: Wed Apr 26, 2017 8:41 am

Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by cas »

terran wrote: Wed Sep 16, 2020 1:16 pm Yes, a Roth conversion will increase your AGI and according to Worksheet 1-1 in Publication 590-A it will not be subtracted from AGI to arrive at MAGI, so it could put you over the limit for making Roth contributions.
Except that the calculation for MAGI as it relates to making Roth contributions is done in Worksheet 2-1 :twisted: . (Worksheet 1-1 calculates the MAGI that relates to traditional IRA purposes).

(And the first thing Worksheet 2-1 does is subtract out any Roth conversions (Lines 1 - 3).)
terran
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Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by terran »

cas wrote: Wed Sep 16, 2020 1:39 pm
terran wrote: Wed Sep 16, 2020 1:16 pm Yes, a Roth conversion will increase your AGI and according to Worksheet 1-1 in Publication 590-A it will not be subtracted from AGI to arrive at MAGI, so it could put you over the limit for making Roth contributions.
Except that the calculation for MAGI as it relates to making Roth contributions is done in Worksheet 2-1 :twisted: . (Worksheet 1-1 calculates the MAGI that relates to traditional IRA purposes).

(And the first thing Worksheet 2-1 does is subtract out any Roth conversions (Lines 1 - 3).)
Oh, good catch, thanks.
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FiveK
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Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

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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FiveK
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Re: Rollover to Roth: incr. MAGI? Can Donation Offset that?

Post by FiveK »

Poppy wrote: Wed Sep 16, 2020 1:01 pm Also, would establishing a Donor Advised Fund for $5K reduce my MAGI by $5K (and thus potentially offset the Roth Conversion income by $5K?)
No.

None of the various Modified Adjusted Gross Incomes (MAGIs) are affected by itemized deductions.
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