MAGI calculation for Roth Contributions

[need_assistance]

I own a second single family home that I rent out, from which I have passive rental income.

TurboTax calculated my MAGI in a Mod AGI worksheet that did not include this passive income, which I believe is correct.

However, when I look at the Roth IRA Contribution Limit Worksheet, TurboTax input my AGI as my MAGI on line 1.  The AGI includes the passive rental income and therefore puts me over the max income limit to contribute to my Roth IRA.  

Is this an error in the software?  If so, how do I get TurboTax to use my correct MAGI for the Roth IRA Contribution worksheet?

[JulieS]

Yes, TurboTax is correct.  For the purposes of figuring your Roth contribution, line 1 says "Enter your adjusted gross income from Form 1040, 1040-SR, or 1040-NR, line 11".  This number would include your passive rental income. 

Click here to see the applicable section of Publication 590A.

[need_assistance]

Thank you for your response.  

I see that on line 1 of the 2021 Roth IRA Contribution Limit Worksheet instructions, but the 2022 form in TurboTax asks for the "modified adjusted gross income" on line 1.  So is the Modified AGI worksheet in TurboTax that I mentioned earlier not applicable when it comes to the ROTH IRA contribution income limit? Was that Modified AGI worksheet completed for another reason?

[AnnetteB6 · Accepted solution]

Modified AGI has different definitions for different purposes.  The Modified AGI worksheet within TurboTax could have been created for something other than to determine Roth IRA contributions.  

Take a closer look at that worksheet at the top.  There should be a designation showing the purpose of that particular worksheet.  For example, it might say Form 8582 Line 7 in the upper left corner of the worksheet which means it was calculated for the purpose of that particular form.

@need_assistance

[Woggly]

TurboTax appears to be adding rental income to my MAGI, and I get a message that my contributions are over the limit.  TurboTax blog from Oct 2022 "Roth IRA: Who Can Contribute?" says: Earned income does not include things such as ... payments from rental properties. 

Does rental income count as earned income toward the Roth IRA contribution limit or not?  I thought rental income was passive.

[AnnetteB6]

The 'earned income' statement in the TurboTax blog post is referring to the requirement that you must have at least as much earned income as you plan to contribute in order to make a contribution to a Roth IRA.  That is not the same thing as the Modified Adjusted Gross Income (MAGI) that is used to determine if your income is too high to make a contribution.

With regard to the MAGI used for Roth contribution limits, rental income does count in this calculation since the starting point is the AGI shown on Form 1040 line 11.  

See the following information from the IRS to learn how the MAGI is calculated for Roth IRA contribution limit purposes:

Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes

@Woggly 

[Woggly]

Thank you!