You Asked Us - Roth Vs Traditional IRA
Q: My modified adjusted gross income (MAGI) falls within the phase-out range for Roth contribution eligibility? How do I determine the amount I am eligible to contribute?
A: If you use tax-preparation software, it should calculate the amount that you are eligible to contribute. If you want to calculate the amount manually, use the following steps:
- Subtract the lower dollar amount in the range from your MAGI.
- Divide the result by the difference between the lower amount in the range and the higher amount in the range.
- Multiply the result by the maximum contribution amount in effect for you for the year.
- Subtract the result from the maximum contribution amount
The result is the amount you are allowed to contribute to a Roth IRA.
Illustration:
- Assume you are under age 50 by the end of the year, which makes your maximum contribution $4,000
- Assume also that your MAGI is $104,000 and your tax filing status is single which makes your range $99,000 to $99,000 to $114,000.
Step 1 |
10400 - 99000 = 5000 |
Step 2 |
5,000/(99,000 -114,000) = |
5000 / (15,000) =0 .33 |
Step 3 |
0.33 X $4,000 = $1,320 |
Step 4 |
$4,000- $1,320=$2,680 |
If the result is not divisible by $10, round the amount up to the nearest $10
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