How do Roth IRA contributions work?

-- Posted: Oct. 19, 2000

Ask the Dollar Diva
By Dorothy Rosen • Bankrate.com

Dear Dollar Diva,
I am confused about the eligibility for contributing to a Roth IRA, which is based on modified adjusted gross income. I am single with a 1999 gross income of $95,000. I contribute fully to my 401(k) plan so that last year my AGI was approximately $79,000.

Can I actually use the $79,000 AGI to be eligible to make a full contribution to the Roth IRA?

-- Myra

The $79,000 AGI is your starting point for determining whether you're eligible to make a Roth IRA contribution. But the final determination can't be made until the AGI is "modified," because it's the modified AGI that rules.

- advertisement -

Your adjusted gross income is your income from items like wages, investments, conversion from traditional to Roth IRA, rentals and Social Security, reduced by items such as your IRA deduction, student loan interest and moving expenses.

Modified AGI is adjusted gross income, with the following additions and subtractions:

Modified AGI

Additions to AGI
Subtractions from AGI

Traditional IRA deduction Income from converting a traditional IRA to a Roth IRA

Student loan interest deduction

Foreign earned income and housing exclusions and deductions

Exclusion of qualified U.S. savings bond interest from Form 8815

Exclusion of employer-paid adoption expenses from Form 8839

If you're single, and your modified AGI is less than $95,000, you can contribute $2,000 to a Roth IRA. Amount you can contribute is reduced between $95,000 and $110,000.

If you're married, filing jointly, and your modified AGI is less than $150,000, you can contribute $2,000 to a Roth IRA. Amount you can contribute is reduced between $150,000 and $160,000.

For more information on contributions to the Roth IRA see IRS Publication 590, Individual Retirement Arrangements (IRAs). And for the Diva's commentary on what's good and not-so-good about the Roth IRA, read "Is the Roth IRA too good to be true?"