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mrl
Level 1

Does contributing to my SEP IRA affect my MAGI for ROTH IRA contribution limits if I am solely self-employed

I need this info for my 2019 taxes but I am referring to my 2018 taxes for now just so I have actual lines in the Tax forms to reference below.

 

From reading the IRA.GOV website and looking at Publication 590-A it seems:

  •  If I contribute to a SEP IRA (Line 28 of Schedule 1 from Form 1040 for 2018) that does NOT affect the MAGI calculation for my contribution limit for a ROTH IRA.  Is that correct?
  • The Deductible SE Tax (Line 27 of Schedule 1 from Form 1040 for 2018) also does NOT affect the MAGI calculation for my contribution limit for a ROTH IRA.  Is that correct?

I seem to be getting conflicting answers because:

  • if I am understanding it correctly it seems as if the IRA.GOV website seems to imply you don't have to add back in SEP IRA contributions NOR Deductible SE Tax to your AGI (Line 7 of Form 1040 for 2018) when figuring your MAGI for ROTH Contribution Limits
  • However some posts on this forum imply you do have to do so (at least for the deductible portion of the SE tax and maybe the SEP IRA contributions as well):     One such post is the following https://turbotax.intuit.com/tax-tips/irs-tax-return/what-is-the-difference-between-agi-and-magi-on-y... and part of it says:

==============================================

MAGI calculation

To calculate your modified adjusted gross income, take your AGI and add back certain deductions. Many of these deductions are rare, so it's possible your AGI and MAGI can be identical. According to the IRS, your MAGI is your AGI with the addition of the following deductions, if applicable:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions, taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • Foreign earned income exclusion
  • Foreign housing exclusion or deduction
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership

==============================================

 

The above definitely includes needing to add back in One-half of self-employment tax and it mentions IRA contributions (but is unclear whether contributions to a SEP IRA are included in this).

 

Please advise because those two things make a HUGE difference whether my ROTH contribution limit for 2019 is $6000 or if I have to calculate an adjusted amount due to my MAGI being between $122,000 and $137,000.    

  • Because if my MAGI means adding both my SEP contribution and my Deductible SE Tax back to my AGI, then my MAGI falls between those two numbers, but if I do NOT have to add those amounts back in then I am significantly under $122,000.

 

Because the IRS.GOV website definitely says the following:

==============================================

Modified AGI limit for Roth IRA contributions increased. For 2019, your Roth IRA contribution limit is reduced (phased out) in the following situations.

  • Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $193,000. You can’t make a Roth IRA contribution if your modified AGI is $203,000 or more.

  • Your filing status is single, head of household, or married filing separately and you didn’t live with your spouse at any time in 2019 and your modified AGI is at least $122,000. You can’t make a Roth IRA contribution if your modified AGI is $137,000 or more.

  • Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than zero. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more.

==============================================

 

Also, is there anywhere in TurboTax Home & Business for Windows for 2019 that will show me:

  • my MAGI as it pertains to my max ROTH IRA contribution allowed?   -- OR --
  • that shows me what my maximum IRA ROTH contribution can actually be?
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2 Replies
dmertz
Level 15

Does contributing to my SEP IRA affect my MAGI for ROTH IRA contribution limits if I am solely self-employed

Deductible self-employed contributions that appear on (2018) Schedule 1 line 28, including a SEP contribution, do reduce your AGI and therefore reduce your MAGI for the purpose of determining the maximum Roth IRA contribution that you are eligible to make.  The amount on line 28 and the deductible portion of self-employment taxes on line 27 are not added back to AGI when calculating MAGI.

 

We SuperUsers have complained many times to the moderators here that TurboTax's MAGI FAQ is very misleading.  Ignore it.

 

The reference to IRA contributions being added back is an add-back of any deduction for regular individual IRA contributions on Schedule 1 line 32, not line 28.  The amount on line 27 for the deductible portion of SE taxes does not get added back.  I'm not aware of any MAGI that requires the add-back of the amount on line 27.

 

Additionally, though, while the amount on line 28 does not count toward your regular individual IRA contribution limit, both the amount on line 28 and the amount on line 27 must be subtracted from net profit from self-employment in determining the amount of self-employment compensation that remains to support a Roth IRA contribution.

 

For most people, MAGI for the purpose of a Roth IRA contribution would just be AGI, plus any regular personal IRA contribution on line 32, minus any addition to AGI resulting from a Roth conversion or taxable Roth rollover from a qualified retirement plan to a Roth IRA (but not an In-plan Roth Rollover).  The other add-backs are much less common for anyone approaching the Roth IRA contribution phase-out range.  For specific details, refer to Worksheet 2-1 in IRS Pub 590-A, which is what TurboTax implements.

mrl
Level 1

Does contributing to my SEP IRA affect my MAGI for ROTH IRA contribution limits if I am solely self-employed

Thank you dmertz.   That is very very helpful.   🙂

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