Roth contribution eligibility question

[Perryinva]

I need some information that the more experienced here might know. I have searched and found nothing definitive. It is an unusual situation. Though I am retired, I still have earned income as part of a severance package that spans 2019 & 2020. I started my pension (required as part of severance) last year as well.

Knowing my projected income each year, I could strategically make my full Roth contribution each year after my Jan paycheck, which I did for 2019, and planned to do for 2020. For 2019 & 2020, the severance plus pension if both are added as my MAGI, puts me well above the level that allows Roth contributions.

But I recently found out that added taxable income from Roth conversion is not counted as MAGI towards that limit, as it is unearned. Just as if your only income is IRS definition of unearned, you do not qualify to make a contribution. A pension is clearly unearned income, and does not qualify you, on its own merits, to make a Roth conversion. So is it part of the MAGI calculation that determines eligibility for Roth contributions?

Not counting my pension would allow me make Roth contributions for both years, barely.

 

[gauss]

I believe that pension income is counted towards the income limit that would prevent a Roth [-]conversion[/-] contribution. You could always do a non-deductible traditional IRA contribution and then later do a Roth conversion to get around the income limitation (ie the back-door Roth contribution).

For reference, checkout worksheet 2-1 "Modified Adjusted Gross Income for Roth IRA Purposes" in IRS Publication 590-A (2018), Contributions to Individual Retirement Arrangements (IRAs)

-gauss

 

[Onward]

I'm almost certain pension income counts toward the AGI limit that disqualifies you from Roth contributions.

Run the scenario through your tax software.

 

[CRLLS]

I believe that pension income is counted towards the income limit that would prevent a Roth [-]conversion[/-] contribution . You could always do a non-deductible traditional IRA contribution and then later do a Roth conversion to get around the income limitation (ie the back-door Roth contribution).

For reference, checkout worksheet 2-1 "Modified Adjusted Gross Income for Roth IRA Purposes" in IRS Publication 590-A (2018), Contributions to Individual Retirement Arrangements (IRAs)

-gauss

FIFY

 

[gauss]

FIFY

Dooh!! - Thanks! I updated it.

 

[cathy63]

Here's the worksheet for calculating your MAGI for Roth Contribution purposes: https://www.irs.gov/publications/p590a#en_US_2018_publink100025085 (be patient, this is a very large page and it takes a while to load and then move to the worksheet.)

Basically it's your AGI from 1040 line 7, which includes your pension, minus your Roth conversions. Then you add back some deductions and exclusions which probably don't apply to you unless you have foreign earned income.

 

[Perryinva]

Thank you all very much. Sucks, but it is what it is and a first world problem for sure.

 

[CRLLS]

Dooh!! - Thanks! I updated it.

No problem. I figured you mis-wrote.