Can I Still Contribute to a Roth IRA? MAGI and Income Phase-Out Confusion

[draco44]

Hello good people of the internet! I'm fortunate to have switched jobs last year for a raise and am now concerned I may this year or in the near future fall somewhere in the phase-out level of income for contributing to a Roth IRA. But I can't wrap my brain around how to calculate MAGI and figure out where I stand now, and how the heck to predict where I'll fall for future years. I am nervous about accidentally over-contributing to a Roth IRA without realizing what I'm doing, and then getting dinged by fees.

I found this table of 2023 and 2024 Roth Contribution tables from Schwab: https://www.schwab.com/ira/roth-ira/contribution-limits. I can see my AGI for past tax years on my old tax returns but I don't know how to calculate MAGI from my past AGIs or predict it for the future. Adding to my confusion, it's my vague sense that there may be multiple variants of MAGI, as alluded to in this old MMM thread: https://forum.mrmoneymustache.com/taxes/help-me-understand-magi-and-agi/. I don't have any rental income, just salary and what I've already invested.

How do others handle this math challenge? What should I do? If I do over-contribute for my income level, do you get some sort of warning before you are charged fees?

As money problems go, I am very glad to have this one, but I feel like I'm hitting a financial level where I don't quite know what I'm doing anymore. Any advice would be much appreciated.

[secondcor521]

Yes, there are various ways to calculate MAGI.  To calculate MAGI for Roth contribution eligibility, fill out Worksheet 2-1 in Pub 590-A at https://www.irs.gov/publications/p590a#en_US_2022_publink1000230985.

You have multiple options to avoid the 6% excise tax on excess contributions:

1.  You can wait until the spring time to figure your MAGI and then make an appropriately sized Roth contribution.  Around now, you should be able to figure your AGI for 2023, and you have until April 15, 2024 to make a 2023 Roth contribution.

2.  You can do a backdoor Roth, which involves making a nondeductible contribution to a traditional IRA then converting the contribution to a Roth.  This is a well known workaround and avoids any MAGI-imposed limits, although there is at least one caveat that you should read up on before heading down this path.

3.  You can contribute to your Roth, and then if you end up being over the contribution limit for your MAGI, you can either (a) withdraw the contributions plus earnings by the due date of your return (plus extensions IIRC), or (b) recharacterize the contribution or a portion of it to a traditional IRA (after which you can, somewhat confusingly, do the backdoor Roth option above).  Nobody will warn you, but if you're aware of the issue and paying attention, you can fix it without too much trouble.

HTH.

[MDM]

Modified Adjusted Gross Income (in particular, as 2C521 said, MAGI for Roth IRA purposes) and Backdoor Roth - Bogleheads may help.

[draco44]

Thank you to both of you for the guidance. I will look into the links you each referenced. I also appreciated @secondcor521 's breakdown of there being multiple paths and ways to fix things if you mess up somehow.