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My wife and I are looking to make around 200K this year, putting us past the Roth IRA income limit. It may be possible for us to get under that limit if we both ratchet up our 401K contributions from our employer matches to the max, but before we make any changes I want to confirm that it will reduce our MAGI. My research on the subject has turned up a myriad of yes's and no's on the subject. From what I understand 401k contributions reduce AGI but then get added back in for the calculation of your MAGI. Is that correct?

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    You shouldn't worry about the Roth IRA income limit. If you don't have an existing deductible Traditional IRA, then you can completely get around the limit by contributing to a (non-deductible) Traditional IRA and then immediately converting to a Roth IRA (a "backdoor Roth IRA"). There is no income limit for this and the tax consequences and everything is completely identical to contributing to a Roth IRA directly. – user102008 Sep 6 '12 at 18:54
  • I echo what @user102008 said. You can just do the backdoor Roth IRA contribution and not have to worry about income limits. But only if you don't have any existing deductible Traditional IRAs or else things become much less favorable. – Craig W Jan 22 '13 at 23:56
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Straight from Publication 590

Modified AGI. Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.

  1. Subtracting the following.

a. Roth IRA conversions included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Conversions are discussed under Can You Move Amounts Into a Roth IRA, later.

b. Roth IRA rollovers from qualified retirement plans included on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

  1. Add the following deductions and exclusions:

a. Traditional IRA deduction,

b. Student loan interest deduction,

c. Tuition and fees deduction,

d. Domestic production activities deduction,

e. Foreign earned income exclusion,

f. Foreign housing exclusion or deduction,

g. Exclusion of qualified bond interest shown on Form 8815,

and

h. Exclusion of employer-provided adoption benefits shown on Form 8839. You can use Worksheet 2-1 to figure your modified AGI.


I don't see 401(k) contributions being added to get MAGI for Roth IRA purposes. But note that various other MAGIs that are used. For example, MAGI for Traditional IRA purposes is somewhat different (though that too does not include 401k contributions in MAGI).

  • Just a correction since the IRS has removed their p950 file. You can get a copy of the Oct. 2011 revised version here - 508fi.org/docs/?file=p950.pdf – Ava Lawrence Feb 10 '17 at 18:46
  • @AvaLawrence The document in question is Publication 590, and not 950. – Dilip Sarwate Feb 10 '17 at 20:25
  • (@AvaLawrence) actually since 2014 it's split; contribution requirements and limits are now in 590A while distributions are in 590B. – dave_thompson_085 Feb 10 '17 at 23:40

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