2

Let's assume the following scenario:

  1. Someone is single
  2. Earns a $100k yearly salary from their employer.
  3. Collects $35k a year in rental income

Will this scenario qualify someone for the phase out range of $131k yearly income? Will they still be able to contribute $5,500 to their Roth IRA? A lot of the resources I've read talk about how making a certain amount determines how much you can contribute. But I can't find much info about what type of income is counted toward the income limit.

  • do you have a traditional IRA now? – JTP - Apologise to Monica Dec 11 '15 at 22:09
  • I have a Roth and two 401k's from my previous employers. I'm not sure if a 401k is considered a traditional ira. – Ivan Lesko Dec 11 '15 at 22:27
  • @IvanLesko: No, IRAs and 401ks are separate – user102008 Dec 12 '15 at 23:13
4

With no traditional IRA balance at all, you can deposit to an IRA, then convert it to Roth. In effect, the phaseout doesn't impact your intended results, only makes the path you need to follow a bit more cumbersome, another form.

  • Oh that's interesting, never thought about that. A traditional IRA has no income limits, right? – Ivan Lesko Dec 11 '15 at 23:42
  • Interesting. They don't restrict you from doing it in the same year? – Joe Dec 12 '15 at 0:10
  • No. See any article citing "back door Roth". – JTP - Apologise to Monica Dec 12 '15 at 2:13
4

IRA limits are based on Modified Adjusted Gross Income, which is explained in the IRS publication on Roth IRAs. The Traditional IRA Modified AGI is similar, but not exactly identical.

  1. Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37
  2. Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b, Form 1040A, line 11b, or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b, Form 1040A, line 12b, or Form 1040NR, line 17b)
  3. Subtract line 2 from line 1
  4. Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32
  5. Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33
  6. Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19
  7. Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34
  8. Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18
  9. Enter any foreign housing deduction from Form 2555, line 50
  10. Enter any excludable qualified savings bond interest from Form 8815, line 14
  11. Enter any excluded employer-provided adoption benefits from Form 8839, line 28
  12. Add the amounts on lines 3 through 11

So, to answer your question: anything that contributes to your AGI counts, plus some additional things that are normally excluded from it, except for certain IRA distributions for the purposes of rollovers or conversions.

  • I think this technically answer the original question, but my knowledge of tax forms is pretty minimal. So rental income does count towards AGI? – Ivan Lesko Dec 12 '15 at 4:47
  • 1
    @IvanLesko Net rental income after deductible expenses (including depreciation), see Schedule E and instructions, counts toward AGI and thus MAGI (and thus tax, as well as the various phaseouts including Roth) – dave_thompson_085 Dec 12 '15 at 14:18

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