Trad IRA income limits help

Submitted by Cletus Bojangles on Wed, 2017-03-01 21:51

I currently have a Roth IRA and 401(k) but am attempting to put max deductible amount into a trad IRA for 2017, however I keep getting hung up on AGI and MAGI calculations. I suspect I will be entering the phase-out MAGI range so I want to ensure I’m calculating these numbers correctly so I can put any non-deductible amount in my roth. As you know phase out MAGI for 2017 trad IRA w/ 401k option is $62k-72k.

The calculation for AGI and MAGI seem to contain a circular reference and I would love some clarification. Let’s call my deductible trad IRA contributions “X”.

AGI calculation (simple scenario) is gross income minus 401(k) deductions, and then most sites say to also subtract out deductible trad IRA contributions. AGI = GI – 401k – X

MAGI is found by taking AGI and adding back in deductible trad IRA contributions. MAGI = AGI + X

My problem here is that in order to know how much of my trad IRA contribution is deductible, I need my MAGI. To get my MAGI, I need my AGI + deductible IRA contributions. To get my AGI I need gross income – deductible IRA contributions. Where do you start? This seems like a unsolvable loop.
X = f(MAGI) but MAGI = f(AGI) and AGI = f(X)

Here are my projected 2017 numbers to use in an example:
Gross income $85k
401k contribution $18k
Desired trad IRA contribution $5500

AGI = $85k – 18k – 5500 = $61,500
MAGI = $61,500 + 5500 = $67,000 so I should only be able to take a partial deduction, but I used the FULL $5500 deduction in my calculations to get here, so this MAGI can’t be correct.

What am I doing wrong?



Submitted by David Mertz on Wed, 2017-03-01 22:20

  • Simply calculate your MAGI without any traditional IRA contribution.  The reduction in MAGI that you would get for a deductible traditional IRA contribution is negated by the fact that you must add the amount of the deductible traditional IRA contribution back to AGI to get MAGI.
  • In your example, your MAGI is the same as your AGI without any traditional IRA contribution.
  • MAGI = GI – 401k – X + X = GI – 401k  (in other words, the amount of X is irrelevant to determining your MAGI)
  • Make sure that the value that you are using for GI has not already been reduced by 401k as would be the case for the amount reported in box 1 of a W-2.


Submitted by Cletus Bojangles on Wed, 2017-03-01 22:47

Thank you very much! I should have seen the +/- cancel out… Looks like I will probably need to wait until EOY 2017 to figure out my true MAGI since OT and investments might push me out of the deduction range. Thanks again!



Submitted by Steve Hagedorn on Thu, 2017-03-02 15:42

Have you considered increasing your 401(K) contributions (if you qualify for catch-up provisions)? This might help further lower your AGI.



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