Do Large Roth Conversions Require Backdoor Roth Contributions?

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There are many reasons you may want to convert a large amount of IRA money to Roth IRA all in one year, but a high AGI is known to prevent you from funding your Roth IRA through normal means. Instead, those with high AGIs have to do what is called “backdoor Roths” to fund their Roth IRA.

However, luckily for Roth lovers like us, you don’t have to choose between Roth conversions or Roth contributions.

Worksheet 2-1 in publication 590-A subtracts Roth conversions from the Roth MAGI number used for calculating the Roth IRA contribution cut off.

Here’s the 2017 worksheet:

Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes

Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes.

1. Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1.
2. Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b) 2.
3. Subtract line 2 from line 1 3.
4. Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4.
5. Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5.
6. Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 6.
7. Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 7.
8. Enter any foreign housing deduction from Form 2555, line 50 8.
9. Enter any excludable qualified savings bond interest from Form 8815, line 14 9.
10. Enter any excluded employer-provided adoption benefits from Form 8839, line 28 10.
11. Add the amounts on lines 3 through 10 11.
12. Enter:

  • $196,000 if married filing jointly or qualifying widow(er),
  • $10,000 if married filing separately and you lived with your spouse at any time during the year, or
  • $133,000 for all others
12.
Is the amount on line 11 more than the amount on line 12?
If yes, see the Note below.
If no, the amount on line 11 is your modified adjusted gross income for Roth IRA purposes.
Note. If the amount on line 11 is more than the amount on line 12 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. If you don’t have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 11 above.

You can see from this worksheet that the only thing you subtract from Roth MAGI is your Roth conversion amount in line 2. Lines 4-10 add back in deductions you might have taken.

This means if your regular AGI is over the line, the only thing that could get you below it again and able to do Roth contributions through the normal means is subtracting out a Roth conversion.

If you are thinking about doing Roth contributions or conversions, you should probably do it. We recommend that most people fund their Roth even when they cannot afford it as well as start conversions now without delay.

Photo by Heather Schwartz on Unsplash

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Megan Russell has worked with Marotta Wealth Management since 2005. She loves to find ways to make the complexities of financial planning accessible to everyone. Her most popular post: The Complete Guide to Your Washing Machine