Is your income too high to qualify for Roth IRA contributions? There is still time to lower your taxable income from last year and make a contribution. Making other changes may also help reduce this year's taxable income when it comes time to file next year.
Do I qualify for Roth IRA contributions?
Question: What is the definition of "modified adjusted gross income" (MAGI) to qualify to contribute to a Roth IRA? I'm close to the income limit and am trying to figure out how I can lower my MAGI so I can qualify this year.
Answer: The definition of modified adjusted gross income varies depending on the tax break. The calculation to qualify for Roth IRA contributions starts by taking your adjusted gross income from the bottom of page 1 of Form 1040 and adding back certain deductions and exclusions you took during the year.
For detailed steps, see our article on how to calculate your Modified Adjusted Gross Income (MAGI). For a worksheet to help with the calculation, see IRS Publication 590-A, Individual Retirement Arrangements.
How much may I contribute to a Roth IRA?
To make the full $6,500 (or $7,500 if you're age 50 or older) contribution to a Roth IRA for the 2023 tax year, your modified adjusted gross income must be less than $138,000 if you're single or $218,000 if you're married filing jointly. The contribution amount gradually phases out as your income gets higher, and you can’t make Roth IRA contributions if your MAGI is more than $153,000 if single or $228,000 if married filing jointly. For more details, such as the limits for those married and filing separately, be sure to review IRS guidance on the amount of contributions you can make.
Strategies for the 2023 tax year
There are several ways to reduce your 2023 modified adjusted gross income to help you qualify to make Roth contributions.
1. Contribute to a Health Savings Account (HSA)
If you have a high-deductible health insurance policy in 2023, you may continue to make contributions to your 2023 account until April 15, 2024. Your HSA must have a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage. You can contribute up to $3,850 for 2023 if you have self-only coverage or $7,750 if you have family coverage, plus a $1,000 catch-up contribution if you're 55 or older. Your contributions are pretax if you make them through your employer or tax-deductible if you make them on your own.
HSAs are powerful tax and retirement planning tools, so make sure you know what your HSA can do for you.
2. Make the most of deductions that reduce your AGI
See if you qualify for any other deductions on page 1 of your Form 1040 that aren't added back into the MAGI calculation. For example, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be eligible to claim a moving expense tax deduction. You can also review whether you qualify for the most overlooked tax deductions, credits and exemptions.
3. Reduce any income from self-employment
If you have any income from your own business, even if you just do freelance work on the side, make the most of tax breaks for the self-employed. See the Instructions for Schedule C for more information about which expenses you can deduct. For more information, see Most Overlooked Tax Breaks for the Self-Employed.
For next year, consider signing up for one of the tax-advantaged accounts for the self-employed. Contributions to a self-employed Simplified Employee Pension, solo 401(k) or other tax-deductible retirement plan can also reduce your AGI.
4. Manage taxes on investment earnings
If you have significant investments, there are steps you can take to reduce taxes on your investment earnings. For example, the strategy known as tax-loss harvesting can benefit you across multiple tax years. In tax-loss harvesting, you can sell long-term positions that have done poorly (resulting in capital losses) and substitute them with similar investments. You can then use that loss to offset the taxes on investment gains from the same year. If your losses exceed your gains, you can use the excess to offset up to $3,000 of ordinary income each year, with any remaining losses carried forward to future years.
Strategies for the 2024 tax year
Here are some smart moves you can make now to lower your adjusted gross income for the next tax year.
5. Make pretax contributions to a 401(k), 403(b), 457 or Thrift Savings Plan
Although the deadline to contribute to these pretax plans was December 31, 2023, for the 2023 tax year, you can get a jump on limiting your taxable income for next year.
The IRS recently announced inflation adjustments for the 2024 401(k) contribution limits. Eligible taxpayers can contribute $23,000 to these accounts in 2024 (up from $22,500 last year). In addition to 401(k) accounts, this limit applies to employees who participate in most 457 plans and the federal government Thrift Savings Plan. The catch-up contribution limit for those age 50 or older participating in those plans will remain 7,500 for 2024.
6. Contribute to a health care flexible-spending account (FSA)
Like a 401(k), you had until the end of the calendar year to make contributions to your 2023 FSA. Still, if you find yourself able to enroll in a 2024 FSA you can max out your contribution for benefits in the 2024 tax year. Although you will normally sign up for an FSA during open enrollment, exceptions to this rule include major life changes, called qualifying events. These events include getting married, divorced, moving or having a baby, for example. You can also start enrollment decisions afresh if you start a job with a new employer. You generally can't contribute to an FSA and an HSA in the same year, unless you have an HSA-compatible FSA.
In the meantime, if you have a 2023 FSA with a grace period, you may still have FSA money to spend. Check your plan to see if you have a grace period until March 15, 2024, to spend the funds. Some plans will also allow you to file claims for reimbursement until March 31, 2024.
7. Contribute to a dependent-care flexible-spending account (FSA)
You may be able to contribute up to $3,000 pretax to a dependent-care FSA to pay for the cost of caring for one child younger than 13 while you and your spouse work. For more than one child, you can claim up to $6,000 in expenses. You generally must sign up to make those contributions during open enrollment in the fall, but you may be able to make changes midyear if you have a qualifying event.
If all else fails, make a backdoor Roth contribution
If you still don't fall below the modified adjusted gross income cutoff, you can make a non-deductible IRA contribution and then convert it to a Roth. If you don't have any other money in a traditional IRA, you'll have to pay taxes only on the earnings when you convert. If you do have other IRA money, your tax liability will be based on the ratio of nondeductible contributions to the total balance in all of your traditional IRAs. This strategy is tricky and not always the best option, so you may want to work with a financial planner or adviser. Read How a Backdoor Roth IRA Works (and Its Drawbacks) for details.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
- Ellen KennedyPersonal Finance Editor, Kiplinger.com
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