What is used for calculating Roth IRA contribution eligibility? Earned income or earned income minus deductions?

[jmarti04]

From reading on irs.gov it seems one can contribute up to earned income, however, Turbotax is reducing that amount by my student loan interest and self-employment deduction.

[dmertz]

Compensation from self-employment available to contribute to an IRA is net profit reduced by the deductible portion of self-employment taxes and the self-employed retirement deduction.  Assuming a single self-employment job, the sum of Form 1040 lines 27, 28 and your IRA contribution cannot exceed net profit from self-employment.

Does that address your question?

[jmarti04]

I'm totally confused. Publication 590A says one can contribute up to "taxable compensation" but that same document says use your AGI. These are two very different numbers for me because I have very low earned income, but high AGI from a pension to trad IRA rollover and a trad to Roth IRA conversion.

[dmertz]

There are two different limitations with regard to being eligible to contribute to a Roth IRA.  The first limitation is that you must have sufficient compensation available to support the contribution.  That's what I addressed above.

The second limitation is that your modified AGI cannot be over a certain amount depending on your filing status, otherwise the amount you are eligible to contribute may be reduced or eliminated, regardless of the amount of compensation you have.  Your modified AGI is your AGI minus the amount of your Roth conversions (and with certain above-the-line deductions that you probably don't have added back in).

[jmarti04]

Ah thank you!
Just so I understand what you're saying: My large conversion and rollover don't affect my contribution eligibility since they are below the maximum AGI. And as far as compensation requirement, I consider only self-employment income minus lines 27/28, and ignore rollovers, conversions, dividends, capital gains etc.?

[dmertz]

Correct.  (I assume that you have no other sources of compensation such as that reported on a W-2.)

[dmertz · Accepted solution]

Answered in the comments.