Modified AGI for ROTH eligibility purposes.

[Nika]

I've just been assuming that it is AGI that needs to be under the phase-out limit.

I've recently talked to someone who said it is a differently calculated AGI. That some of the deductions do not qualify for the purpose of calculating modified AGI.

Can anyone clarify? Do 401K contributions and mortgage interest deductions reduce that number, or do they not count in calculating for ROTH eligibility purposes?

[kv968]

I've just been assuming that it is AGI that needs to be under the phase-out limit.

I've recently talked to someone who said it is a differently calculated AGI. That some of the deductions do not qualify for the purpose of calculating modified AGI.

Can anyone clarify? Do 401K contributions and mortgage interest deductions reduce that number, or do they not count in calculating for ROTH eligibility purposes?

Mortgage interest deductions won't add to your MAGI. However 401k contribution may be added back if they were pre-tax since traditional IRA deductions would have to be added back in. As would student loan interest deductions, tuition and fees deducted and some others:

IRS 590

Hopefully MonkeyMama can clear it up better for you.

[Nika]

So how can one actively reduce that modified AGI?

[scfr]

I always prefer to go straight to the source (IRS):

http://www.irs.gov/publications/p590/ch02.html#en_US_2012_publink1000230988

Quoting directly from the IRS' page:

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

Subtracting the following.

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.

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

Add the following deductions and exclusions:

Traditional IRA deduction,

Student loan interest deduction,

Tuition and fees deduction,

Domestic production activities deduction,

Foreign earned income exclusion,

Foreign housing exclusion or deduction,

Exclusion of qualified bond interest shown on Form 8815, and

Exclusion of employer-provided adoption benefits shown on Form 8839.

You can use Worksheet 2-1 to figure your modified AGI.

[Nika]

now I'm not the one who does taxes in our family... so correct me if I am reading it wrong, but if it says to add those things back on, than it means the are not counted as deductions for purposes of MAGI? And only roth conversion counts?