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My modified adjusted gross income (MAGI) falls within the phase-out range for Roth contribution eligibility? How do I determine.........

Last Updated April 2, 2009

Question: 

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?

Answer: 

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:

  1. Subtract the lower dollar amount in the range from your MAGI.
  2. Divide the result by the difference between the lower amount in the range and the higher amount in the range.
  3. Multiply the result by the maximum contribution amount in effect for you for the year.
  4. 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 $5,000
        • Assume also that your MAGI is $108,000 and your tax filing status is single which makes your range $105,000 to $120,000 .

Step 1

10800 - 105000 = 3000

Step 2

3,000/(105,000 -120,000) =

3,000 / (15,000) =0 .20

Step 3

0.20 X $5,000 = $1,000

Step 4

$5,000- $1,000=$4,000

You can contribute $4,000 to your Roth IRA
 

If the result is not divisible by $10, round the amount up to the nearest $10

 

 

 
The range used in the example above is for 2009.
To calculate the contribution for 2008, simply substitute the range for 2008, which can be found here http://www.retirementdictionary.com/articles/irsannouncesplanlimits2008