There’s an oddity when it comes to computing MAGI for Roth IRA annual contribution purposes.

For even more details, check out this blog post:

Here are the IRS Roth IRA MAGI limits for 2023:

0:00 Introduction
0:18 2023 Roth IRA Limits
0:34 2023 Roth IRA MAGI Limits
1:06 MAGI Definition
1:59 1997 Roth IRA Creation
4:06 2006 Roth IRA Law Change
4:26 Roth IRA MAGI Definition Quirk
4:43 There Should Not Be a MAGI Limitation

This video, the show notes, description, and any comments are for educational purposes only. They do not constitute tax, legal, financial, and/or investment advice for any person. Consult with your own advisors regarding your own matters….(read more)

LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

The Roth IRA is a retirement savings plan that offers tax-free growth and withdrawals, making it an attractive option for many savers. However, there’s an odd quirk to the Roth IRA MAGI (Modified Adjusted Gross Income) Rule that could affect your ability to contribute to one. Let’s take a closer look at what this quirk is and how it could impact you.

First, you need to understand what MAGI is. It’s an individual’s adjusted gross income (AGI) with certain deductions and additions, such as student loan interest, foreign income, and IRA contributions. The IRS uses MAGI to determine eligibility for certain tax benefits and deductions, including Roth IRA contributions.

The Roth IRA MAGI Rule states that if your MAGI exceeds a certain threshold, you may not be able to contribute to a Roth IRA, or your contribution limit may be reduced. The threshold varies based on your filing status and changes from year to year.

For example, let’s say you’re a single filer in 2021, and your MAGI is $140,000. The phase-out range for Roth IRA contributions is $125,000-$140,000 for single filers. That means your contribution limit would be reduced, and you’d be able to contribute only a partial amount to your Roth IRA. If your MAGI exceeded the phase-out range, you wouldn’t be able to contribute to a Roth IRA at all.

So, what’s the odd quirk of the Roth IRA MAGI Rule? It’s that the phase-out range for Roth IRA contributions is inexact. Unlike many other tax rules, which have clear cutoffs or phase-outs, the Roth IRA MAGI Rule has a range of income levels where your contribution limit is gradually reduced until it hits zero.

Why is this a problem? Well, it can be confusing and frustrating for savers who are trying to determine how much they can contribute to their Roth IRA. The lack of a clear cutoff or phase-out can make it challenging to plan and budget for retirement savings.

Additionally, the Roth IRA MAGI Rule can affect high-income earners disproportionately. For example, if you’re a married couple filing jointly in 2021, and your MAGI exceeds $208,000, you’re not eligible to contribute to a Roth IRA at all. This can be particularly frustrating for high earners, who may have fewer retirement savings options available to them.

In conclusion, the Roth IRA MAGI Rule is a crucial factor to consider when planning your retirement savings strategy. While it offers tax-free growth and withdrawals, the inexact phase-out range can make it challenging to determine your contribution limit. It’s essential to understand your MAGI and the current phase-out ranges to ensure that you’re making the most of your retirement savings opportunities.