Does Conversion count towards MAGI for Contribution?

[Guest redlenses]

Lets say you have an MAGI of 95,000 and you convert a large traditonal IRA to a Roth (resulting in higher income and taxes), is your MAGI still considered 95,000 (i.e. is the conversion ignored) for your Roth IRA contribution meaning you can contribute the full $4000 or does the conversion play a role in your MAGI for the contribution?

[John G]

You seem to be talking about a Roth conversion, but then refer to a $4,000 contribution.

The conversion does not count as part of your MAGI. I highly recommend that you get advice from an accountant or tax professional before doing a "large conversion". Two reasons: it is desireable to get a second opinion of the wisdom of a conversion, and (2) if you decide to proceed, getting it done right.

[Guest redlenses]

You seem to be talking about a Roth conversion, but then refer to a $4,000 contribution.

The conversion does not count as part of your MAGI. I highly recommend that you get advice from an accountant or tax professional before doing a "large conversion". Two reasons: it is desireable to get a second opinion of the wisdom of a conversion, and (2) if you decide to proceed, getting it done right.

Yes the question is complicated, I am interested in how a 2006 IRA Conversion would affect one's MAGI in relation to one's 2006 Roth IRA Contribution eligibility.

Normally a MAGI of 95,000 means that you can do a full $4000 (no phase out) 2006 Roth IRA contribution, but I want to know if the income and tax resulting from a Traditional to Roth Conversion (done in 2006) would affect MAGI for the purposes of a 2006 ROTH IRA contribution (I know it does not affect MAGI in relation to the 100,000 cap for conversion elligibility).

[Appleby]

The Roth conversation is excluded from the MAGI for purpose of determining for a Roth Conversion or contribution.

Cite: Section 1.408A-4 , Q&A 9 of the Final Roth IRA Regulations

Q-9. Is the taxable conversion amount included in income for all purposes?

A-9. Except as provided below, any taxable conversion amount includible in gross income for a year as a result of the conversion (regardless of whether the individual is using a 4-year spread) is included in income for all purposes. Thus, for example, it is counted for purposes of determining the taxable portion of social security payments under section 86 and for purposes of determining the phase- out of the $25,000 exemption under section 469(i) relating to the disallowance of passive activity losses from rental real estate activities. However, as provided in section 1.408A-3 A-5, the taxable conversion amount (and any resulting change in other elements of adjusted gross income) is disregarded for purposes of determining modified AGI for section 408A.