What is Modified AGI

[DrF]

So, this issue with Traditional vs Roth IRA depends on your modified AGI. Basically, if married filing jointly you have to earn less than $96,000 to qualify for a full deduction with the Traditional IRA.

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014--IRA-Contribution-and-Deduction-Limits---Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work

The question is - What are the rules behind "Modified AGI"?

If I max out my employer retirement plans between my wife and I, this will bring our take home pay below the $96,000.  Is this the same as a modified AGI below $96,000?

DrFunk

[Cheddar Stacker]

That's your starting point. $96K would go on the wages line of your tax return. After that you add (or subtract) many things. Interest, dividends, capital gains, rental income, etc.

If you don't have a lot of other income you should be able to keep your AGI below the limits. Modified AGI is different for many different calculations. AGI is at the bottom of page 1 of your tax return. M.AGI just adds a few things back, like IRA contributions.

[matchewed]

http://www.irs.com/articles/what-modified-adjusted-gross-income

[BooksAreNerdy]

If our magi is above 96k, was it a mistake to open a TIRA for myself this year? Should I have done a Roth?

DH started the year earning 104k and he had a 4k raise in August. He got a 17400 bonus in march. (Total should be about 123800).  We contribute +/-17500 to the 401k and 1500 to the HSA. We are back end loading the 401k and don't want to max the HSA this year as well. (Reason for not maxing hsa- We do have about $800/mo that we are using to invest in a Roth for DH and a 529 for the new babe.) Even if we maxed the HSA, we would be about 4800 short of 96k.

So, will I get a partial deduction for the tIRA? In the future should we do the Roth for both of us?

Sometimes I feel like a bumbling fool about all of this and I just hope that investing anything/anywhere at all is better than not.

[Cheddar Stacker]

Do you work? If so, do you have a 401k plan at work?

If you answered yes to both of those questions, you are a covered employee and you might not be able to deduct all of your T.IRA contribution, but you might get some of it. If you answered no to either question your T.IRA contribution should be 100% deductible as long as it's yours, not your husbands, because the MAGI limit for non-covered married people is ~$181K.

A way around this though this year or in the future would be to contribute the max to the HSA for the tax deduction and reduce your IRA contribution. You might also consider a Roth IRA if you're still above the T.IRA limit.

[BooksAreNerdy]

No, I do not work. Yes, the tIRA is in my name.

So, moving forward (starting Jan 1), we will be maxing 401k, maxing HSA, and maxing two IRAs. Am I correct in assuming that the IRA should be Roth for DH and Trad for me?

[Cheddar Stacker]

No, I do not work. Yes, the tIRA is in my name.

So, moving forward (starting Jan 1), we will be maxing 401k, maxing HSA, and maxing two IRAs. Am I correct in assuming that the IRA should be Roth for DH and Trad for me?

Perfectly summarized, yes do that.

If your MAGI drops below the $96K level you could get a full deduction for your Husband's T.IRA if you elect to go that route, but that doesn't sound likely unless the bonus was a one-time thing. You can get a partial deduction for a T.IRA contribution for your husband, but I'm not sure it would be worth it. MAGI between $96-116K is a partial deduction for a covered spouse.

[BooksAreNerdy]

Excellent, thank you for clearing that up.