MAGI calculation for Roth IRA (and if 403b in-plan conversions count towards it)
I’m okay at basic personal finances but not an expert (I’m a teacher, not in finance). I posted this question on another forum with more detail, but someone suggested posting for more expertise. And over the years, I’ve heard great things about Ed Slott! Here’s what I’m grappling with.
I have Roth IRA and I have contributed $7,000 for this year.
My 403b has recently allowed for post-tax (Roth) contributions as well as pre-tax (Traditional) contributions. I have a lot of money in Traditional “bucket” of the 403b. So a few weeks ago, I did a $50k in-plan conversion (from 403b in the “traditional” bucket to the “roth” bucket). I know I will be paying taxes on that, and I have the money for that.
Here’s my question:
Does this create a problem with me contributing to my Roth IRA? Does the $50k from the 403b conversion get counted as part of my MAGI?
Does this create a problem with me contributing to my Roth IRA? Does the $50k from the 403b conversion get counted as part of my MAGI?
- If the conversion gets added to my MAGI, that puts it at around $185k ($125k [job] +$10k [investments] + $50k [conversion]). And at that value, I can’t contribute anything to my Roth IRA and then I have to basically “undo” that.
- If the conversion doesn’t get added to my MAGI, then I’m in the clear for contributing to my Roth IRA.
Thanks for any help!
PS. The IRS worksheet that seems relevant is Worksheet 2-1 from IRS Publication 590-A (page 40 here) which explains how to calculate the MAGI for Roth IRAs. But Line 2 in the worksheet never talks explicitly about an in-plan conversion. It talks about a rollover from a qualified retirement plan to a Roth IRA. Substantively, I think it’s the same thing, so I am hoping it’s not a problem. But I can’t find anything online explicitly saying that in-plan conversions from Traditional to Roth don’t affect the MAGI for Roth.
Permalink Submitted by Sameer Shah on Sun, 2024-12-01 18:41
Thank you so much for taking the time to reply. This has been a fun puzzle to go down an IRS rabbit hole to figure this out, even though I keep coming up short on my own.
It is so strange to me that they don’t count (in Line 2 of the worksheet) in-plan 403b conversions from traditional to roth, but they do count conversions from a traditional 403b to a roth IRA. As you said, it feels so inconsistent. Which at least validates my feelings that it might be counted and I was missing something!
Again, I really appreciate your time and help with this!