MAGI and Roth conversion
1. Can charitable contributions be substracted from MAGI?
2. Are Pension dollars (unearned income) added into or included in MAGI?
3. Are Social Security Payments (unearned income) added into or included in MAGI?
4. Is income received from “tax exempt” Money market funds added into MAGI?
I am close so I need to make sure I am including everything and excluding what I should.
Permalink Submitted by mk foss on Wed, 2009-07-29 16:43
MAGI is determined from items shown on page 1 of your tax return.
Charitable contributions are NOT subtracted unless they were netted against an IRA RMD on page 1 of your tax return.
Unearned income is part of MAGI.
Tax exempt money market funds are not added to income on page 1 of your return and are not part of MAGI.
If you make a Roth contribution or conversion and it turns out that you are over the limit, you can recharacterize by October 15 of the next tax year.
Good Luck
Permalink Submitted by Carolyn Pearson on Wed, 2009-07-29 19:04
Thank you for your quick reply
1. Are deductible contributions to an IRA in any year of conversion… substracted from MAGI?
2. With some of the changes in Roth conversions in 2010
Which of the examples below is correct?
If a person converts 100 in 2010
A. Can only 50 be applied to the income for 2010 and the remaining 50 be applied to income in 2011 in determining taxes due?
or
B. All 100 must be applied to existing/other taxable income in 2010 and the tax burden due on the 100 converted can be paid 1/2 in 2010 and other 1/2 in 2011?
3. Or is 2011 & 2012?? the years the tax burden is paid?
Permalink Submitted by Alan Spross on Wed, 2009-07-29 21:25
The items that are included and excluded show on p 61 of Pub 590. Any deductible TIRA contribution must be added back to your AGI shown on the bottom of the first page of Form 1040 to get to your MAGI figure. However, the conversion amount itself is subtracted from your AGI to get MAGI.
However, all of this no longer applies as of 2010, since the income and marital filing status will no longer count after 2009 in determining eligibility for Roth conversions. Anybody that has an account to convert will be able to convert it. Your choices for question 2 are not correct. The choices for a 2010 conversion are:
1) The default option (if you do nothing) – 50% of the income will be reported in 2011 and 50% in 2012, (none in 2010) or
2) You can opt out of the above and report the entire conversion in 2010.
3. This is correct. Income is reported in 2011 and 2012 unless you opt out and report it all in 2010.
Permalink Submitted by Carolyn Pearson on Mon, 2009-08-03 17:54
Thanks Mary Kay and Alan
Sorry for my delay
1. Does the employee contribution for 401-k’s essentially lower the magi for 2009 qualifying ?
2. Does the employer piece have anything to do with moving you toward not qualifying under the 100k restriction ?
3. Can 1 spouse convert their ira in 2010 per the default option (50% taxed at using the 2011 tax bracket and remaining 50% taxed at the 2012 bracket )
AND a 2 nd spouse convert part(s) of their ira under the existing rules ( taxes paid using the 2010 tax brackets ?
4. Can the 1 spouse only choose both options…thereby taking advantage of all 3 bracket years ?
5.. Have tax brackets been announced for 2010 ? 2011 ? 2012 ?
6. Would any of the experts or those that have read sound readings share their guesses ?
Not sure if I worded 1 and 2 correctly
thank you
Thanks
Permalink Submitted by Clyde Wolf on Mon, 2009-08-03 18:22
1) A tax deductable contribution to a 401k plan will help lower your AGI and your MAGI in theyear of the contribution.
2) Employer matching contributions to a 401k plan do not have any impact to your MAGI until the employee takes a distribution from the plan.
3) On a joint tax return, when both tax filers make a ROTH Conversion, one spouse can use the 2011 and 2012 tax treatment, while the other spouse can elect to pay the tax in 2010.
4) No. Each IRA owner must make a choice to use the default tax treatment of paying the tax in 2011 and 2012 or opt out of that method and pay the tax in 2010.
5) I am not aware of the tax brackets for years beyond 2009. But we do know the “Bush Tax Cuts” will expire on December 31, 2010. Many of us will see a tax increase in 2011.
6) I don’t consider myself an expert, but I have heard it defined this way:
– An Ex is a has been, and a spert is a drip under pressure.
Permalink Submitted by Carolyn Pearson on Mon, 2009-08-03 20:01
cwolf
Ok, if you’re not an expert , you did answer in less than 30 min.
We’ll call you a scholar and gentleman .
Thank You
Permalink Submitted by Clyde Wolf on Tue, 2009-08-04 00:20
Carolyn,
Thank you for the kind words.
Alan-oniras knows much more than I ever will.
And Ed Slott is the real master of IRAs.
I learn from both.