How to Determine Roth IRA Income Limits
Find your adjusted gross income (“AGI”) for the year in which you wish to contribute., Calculate your modified AGI (MAGI)., Figure out your contribution limit., Contribute additional funds if you are over 50.
Step-by-Step Guide
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Step 1: Find your adjusted gross income (“AGI”) for the year in which you wish to contribute.
Your AGI is your taxable income that is used by the IRS to determine your income taxes.
It is calculated by adding up all of your taxable income sources and subtracting any deductions you make on this amount.
Taxable income sources include wages, self-employment pay, salary, tips, interest, alimony, and pensions, along with unreported income like proceeds from the sale of property and unemployment compensation.
From the sum of these numbers (your gross income), you will subtract any deductions you can make, including medical expenses, alimony, unreimbursed business expenses, IRA contributions, and losses incurred from the sale of property, among others.Your AGI is the number you reported on line 37 of IRS Form 1040, or line 21 of IRS Form 1040A when you prepared your federal income tax return for the relevant year. -
Step 2: Calculate your modified AGI (MAGI).
Your MAGI is a calculation of gross income used to find how much of your IRA contributions you can deduct from your gross income.
It is found by adding some deducted items back to AGI.
For example, student loan deductions and IRA contribution deductions, along with foreign income and housing deductions, are added back to AGI to find MAGI.
A higher MAGI will prevent you from deducting some of your IRA contributions, and a very high MAGI will prevent you from deducting altogether.You can also find your MAGI by completing Worksheet 1 on IRS Publication
590.
To complete the worksheet you will need your federal income tax return for the year in which you wish to contribute.
Read the instructions carefully, and complete any additional worksheets included in the instructions., Under the maximum MAGI limits that determine eligibility to contribute to a Roth IRA, there are MAGI levels that may reduce the amount of the contribution that you are able to make to the Roth IRA each year.
For example, single filers can contribute the maximum allowed amount, $5,500, if their MAGI for 2016 is under $117,000.
For every $1,500 they are over that amount, their maximum allowed contribution is reduced by $550.
So for example, someone filing as single who reported a MAGI of $120,000 could only contribute $4,400 to a Roth IRA that year.
The lower limit for married filing jointly is $184,000.
Anyone reporting a lower MAGI can contribute the full $5,500.
Anyone over that amount can contribute $550 less for every $1,000 they are over that limit.You can also find your limit using Worksheet 2 on IRS Publication
590.
Follow the instructions for each line to calculate your contribution limit on line
11. , If you are over the age of 50, you are allowed to contribute up to $1,000 extra every year, for a total of $6,500.
However, if you are over the lower MAGI limits and your regular contribution is reduced, your added contribution for being over 50 will also be reduced.For example, a single filer over 50 with a MAGI over $130,500 (but under the upper limit of $132,000) will only be able to contribute $550 to the Roth IRA, plus an additional $100 for being over
50.
This makes a total of $650. -
Step 3: Figure out your contribution limit.
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Step 4: Contribute additional funds if you are over 50.
Detailed Guide
Your AGI is your taxable income that is used by the IRS to determine your income taxes.
It is calculated by adding up all of your taxable income sources and subtracting any deductions you make on this amount.
Taxable income sources include wages, self-employment pay, salary, tips, interest, alimony, and pensions, along with unreported income like proceeds from the sale of property and unemployment compensation.
From the sum of these numbers (your gross income), you will subtract any deductions you can make, including medical expenses, alimony, unreimbursed business expenses, IRA contributions, and losses incurred from the sale of property, among others.Your AGI is the number you reported on line 37 of IRS Form 1040, or line 21 of IRS Form 1040A when you prepared your federal income tax return for the relevant year.
Your MAGI is a calculation of gross income used to find how much of your IRA contributions you can deduct from your gross income.
It is found by adding some deducted items back to AGI.
For example, student loan deductions and IRA contribution deductions, along with foreign income and housing deductions, are added back to AGI to find MAGI.
A higher MAGI will prevent you from deducting some of your IRA contributions, and a very high MAGI will prevent you from deducting altogether.You can also find your MAGI by completing Worksheet 1 on IRS Publication
590.
To complete the worksheet you will need your federal income tax return for the year in which you wish to contribute.
Read the instructions carefully, and complete any additional worksheets included in the instructions., Under the maximum MAGI limits that determine eligibility to contribute to a Roth IRA, there are MAGI levels that may reduce the amount of the contribution that you are able to make to the Roth IRA each year.
For example, single filers can contribute the maximum allowed amount, $5,500, if their MAGI for 2016 is under $117,000.
For every $1,500 they are over that amount, their maximum allowed contribution is reduced by $550.
So for example, someone filing as single who reported a MAGI of $120,000 could only contribute $4,400 to a Roth IRA that year.
The lower limit for married filing jointly is $184,000.
Anyone reporting a lower MAGI can contribute the full $5,500.
Anyone over that amount can contribute $550 less for every $1,000 they are over that limit.You can also find your limit using Worksheet 2 on IRS Publication
590.
Follow the instructions for each line to calculate your contribution limit on line
11. , If you are over the age of 50, you are allowed to contribute up to $1,000 extra every year, for a total of $6,500.
However, if you are over the lower MAGI limits and your regular contribution is reduced, your added contribution for being over 50 will also be reduced.For example, a single filer over 50 with a MAGI over $130,500 (but under the upper limit of $132,000) will only be able to contribute $550 to the Roth IRA, plus an additional $100 for being over
50.
This makes a total of $650.
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Edward Brown
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