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401k/457 and direct contributions to a Roth IRA

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  • Avatar Nargosi 
    Participant
    Status: Physician
    Posts: 1
    Joined: 04/12/2019
    alpha investing

    I apologize ahead of time for what is probably a very basic question, but one that I’m not 100% confident I’ve found the answer to. It may be a big headache if I get it wrong, so I wanted to be sure.

    I’ll be finishing fellowship and starting an attending job this year. I suspect my total income for 2019 will put me right at the cusp of eligibility for contributing directly to a Roth IRA (vs doing the backdoor). My question is this: when calculating my Modified Adjusted Gross Income to determine eligibility for a direct Roth contribution, is this number reduced by the amount that I contribute to pre-tax retirement plans? For example, if I make $220,000 in 2019, but contribute  $19,000 each to a 401k and a 457, does that put me at $182,000 and therefore eligible? (I am married).

    I know I could avoid this headache by just going through the backdoor if I am unsure, but I have already made some direct Roth contributions and would rather not go through the trouble of recharacterizing them first if I don’t have to.

    Thanks.

    #205993 Reply
    jhenry jhenry 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 14
    Joined: 03/26/2019

    Hi, you are right –  Modified Adjusted Gross Income is used to determine if you’re eligible to contribute to an IRA. The calculation starts with adjusted gross income and then adds back in a number of items such as IRA deductions.

    Joshua Henry, Meridian Financial Advisory ~ [email protected]
    https://www.meridianfinancialadvisory.com/

    #206023 Reply
    Liked by Nargosi, Craigy
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3988
    Joined: 01/08/2016
    I know I could avoid this headache by just going through the backdoor if I am unsure, but I have already made some direct Roth contributions and would rather not go through the trouble of recharacterizing them first if I don’t have to.

    Click to expand…

    sounds like you are close enough that it might be worth it to recharacterize now and then fund the IRA in full, then convert again.

    #206026 Reply
    Liked by jhenry
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 438
    Joined: 06/12/2017
    My question is this: when calculating my Modified Adjusted Gross Income to determine eligibility for a direct Roth contribution, is this number reduced by the amount that I contribute to pre-tax retirement plans?

    Click to expand…

    No, it is not.

    MAGI is your AGI with the following added back to it:

    • Student loan interest
    • One-half of self-employment tax
    • Qualified tuition expenses
    • Tuition and fees deduction
    • Passive loss or passive income
    • IRA contributions, taxable social security payments
    • The exclusion for income from U.S. savings bonds
    • The exclusion under 137 for adoption expenses
    • Rental losses
    • Any overall loss from a publicly traded partnership

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #206090 Reply
    Liked by Craigy

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