What MAGI value do I use to find my ROTH IRA contribution limit. The new Unemployment Compensation Exclusion MAGI or the value that includes my unemployment compensation?

[dmertz]

The calculation of MAGI for the purpose of a Roth IRA contribution adds back the exclusion for unemployment compensation.  In other words, the MAGI includes the unemployment compensation.  Your eligibility to make a Roth IRA contribution did not change with the American Rescue Plan Act of 2021 becoming law.

[tfgentsch-netsca]

dmertz, Thank you for your response!

My income level puts me in the ROTH contribution "phase out" zone ($124-$139K).  Thus the MAGI value affects how much I can contribute to my ROTH.  The higher the MAGI the less I can contribute to my ROTH.  So, what I'm trying to find out is which MAGI to use to avoid over or underfunding my ROTH.  Both values keep me in the "phase out" zone.

[dmertz · Accepted solution]

TurboTax has already been updated to add back the excluded unemployment compensation when calculating the MAGI for a Roth IRA contribution.  After completing all other aspects of your tax return, enter a $7,000 Roth IRA contribution and TurboTax will tell you how much of that is excess.  Finally, go back and edit the original $7,000 entry to reduce it by the amount of the excess.

[tfgentsch-netsca]

Thank you again for your response.  I had already done the steps you recommended prior to posting my question.  There is no question that Turbo Tax adds back the excluded unemployment compensation when it figures MAGI for my ROTH contribution limit.  Your comments reassure me that the updated program is handling the transaction correctly.  While I did not expect the excluded unemployment compensation MAGI to carry over to the ROTH situation, I've been unable to find supporting documentation in the IRS publications or in Turbo Tax clarifying this point.  Given all the recent changes I didn't want to make any assumptions.  Thanks again for your input.

[dmertz]

The American Rescue Plan Act of 2021 became law less than a month ago, not long enough ago for the IRS to have updated Pub590-A with this change.  One has to read the act itself to see this addition to the MAGI calculation.

[tfgentsch-netsca]

Got it!  Thanks again for your input.  Much appreciated!

[uqyuki]

Hi i was reading the pub P-590A and the MAGI worksheet basically listed as your AGI + misc.deductions but not deduct any unemployment tax break. So is that mean your MAGI calculation to determine your IRA deduction still includes Unemployment compensation as part of your AGI even we have $10,200 unemployment tax break?