Roth IRA Contribution Eligibility and IPRR
I did an in-plan conversion (IPRR) from my traditional 401K to a Roth 401K. Does the amount of this conversion get subtracted from MAGI when determining Roth IRA contribution eligibility?
The Worksheet 2-1 (Modified Adjusted Gross Income for Roth IRA Purposes) includes a rollover from a qualified retirement plan to a Roth IRA, but not specifically address a rollover to a designated Roth (Roth 401K). Is it implied that this scenario is also included?
Permalink Submitted by Alan - IRA critic on Sun, 2024-12-29 12:52
Unfortunately, no. The worksheet is correct.
Apparently, these rules were designed only to favor Roth IRAs by exempting only amounts rolled to Roth IRAs, while substantially identical such in plan Roth rollovers within qualified plans are left out. Another reason for this inconsistent treatment may be that there are no income limitations for designated Roth contributions.
It should also be noted that any deductible TIRA contribution must also be added back for Roth MAGI determination. The only subtractions are qualified rollover contributions (conversions) to Roth IRAs.
Permalink Submitted by DaveT on Sun, 2024-12-29 15:31
I was hoping that was not the case, but thanks for the response. I am curious though. Assuming my 1099-R distribution code is ‘G’, how would the IRS determine that it was a rollover to a Roth IRA vs a designated Roth account (Roth 401K)?
Permalink Submitted by Alan - IRA critic on Sun, 2024-12-29 16:30
By the 5498 issued by the Roth IRA custodian. A 401k does not issue a 5498.
That said, because the 1099R for a qualified rollover contribution to the designated Roth (IRR) will be identical to a 1099R reporting a rollover to a Roth IRA, unless the program requests input of the destination account, it would probably not complete the worksheet correctly, and the MAGI for regular Roth IRA contribution purposes would likely be understated.