How are capital gains/losses calculated in MAGI for Roth IRA eligibility? My salary is $100k with $30k realized gains, down from $100k gains
So I've been trying to figure out my Roth IRA eligibility and I'm really confused about how MAGI works with my capital gains situation. I earn about $130k from my job, and earlier this year I had significant stock market activity. Initially I had realized gains of around $130k, but after the recent market correction, my realized gains are now only about $40k for the year. I know there's an income limit for Roth IRA contributions (somewhere around $153k for single filers), and I'm trying to determine if I'm still eligible to make my contribution for the year. Do I include all my realized capital gains in my MAGI calculation? And if so, does that mean I'm over the limit with my salary plus the $40k in gains? I'm particularly confused because my situation changed throughout the year. Does it matter when the gains were realized? Like if I go over the limit but then have losses that bring me back under, can I still contribute? Any help would be really appreciated!
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Ava Thompson
The calculation for Modified Adjusted Gross Income (MAGI) for Roth IRA purposes does include your capital gains. For 2025, the income phase-out range for single filers is $146,000-$161,000, so you need to be below $161k for at least partial contributions. Your MAGI would include your salary ($130k) plus your net realized capital gains ($40k), giving you approximately $170k. Unfortunately, this would put you above the Roth IRA contribution limit for 2025. The timing of when you realized gains or losses during the year doesn't matter for this calculation - it's based on your total for the tax year.
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CyberSiren
•But wait, couldn't they still do a backdoor Roth IRA conversion? I thought there's no income limit on that strategy...
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Ava Thompson
•Yes, the backdoor Roth IRA is still an option regardless of income level. This involves making a non-deductible contribution to a traditional IRA (which has no income limit for contributions, only for deductibility) and then converting it to a Roth IRA. The conversion would be tax-free if you have no other pre-tax IRA assets (like rollover IRAs from previous 401ks). However, if you do have other traditional IRA assets, you would need to consider the pro-rata rule, which could cause some tax consequences on the conversion.
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Miguel Alvarez
I went through something similar last year and found taxr.ai super helpful for figuring out my MAGI situation. I was also confused about capital gains impact on my Roth eligibility. The site (https://taxr.ai) has tools that analyze your specific situation and give personalized advice about retirement contribution strategies based on your income sources. It was way easier than trying to figure it out from generic articles online.
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Zainab Yusuf
•How accurate was it? I'm wondering if it accounts for the wash sale rule too? I had some losses that got disallowed and it messed up my calculations.
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Connor O'Reilly
•Does it also help you figure out the backdoor Roth strategy? I've heard mixed things about whether that's still allowed or if there are complications.
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Miguel Alvarez
•It was extremely accurate in my experience - it flagged several wash sales I had completely missed when I uploaded my trading history, which saved me from making a costly mistake on my taxes. Yes, it definitely covers backdoor Roth strategies! It actually walked me through the whole process including the pro-rata calculations and helped me determine if it made sense for my situation. The guidance was super clear about potential complications and how to avoid them.
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Zainab Yusuf
Just wanted to follow up - I decided to try taxr.ai after posting my question here and wow, it was exactly what I needed! I uploaded my brokerage statements and it immediately recognized my wash sales and properly calculated my actual MAGI. Turns out I was eligible for a partial Roth contribution which I wouldn't have known otherwise. It even showed me how to time my remaining transactions for the year to potentially get under the full contribution limit. Definitely recommend if you're dealing with capital gains/losses and retirement planning.
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Yara Khoury
If you're planning to call the IRS to get clarification on your MAGI calculation (which I tried to do), good luck getting through! I spent hours on hold before discovering Claimyr (https://claimyr.com). They have this callback system that holds your place in line with the IRS and calls you when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I had specific questions about how certain capital losses affected my MAGI for Roth purposes, and finally got answers from an actual IRS agent without the endless waiting.
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Keisha Taylor
•How does that even work? Doesn't sound legit to me. Why would the IRS allow a third party to hold your place in line?
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StardustSeeker
•Are you sure the IRS will give specific advice on contribution strategies? In my experience they only answer general tax law questions but won't give personalized financial advice.
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Yara Khoury
•It's completely legitimate - they use an automated system that navigates the IRS phone tree and waits on hold for you. When an agent comes on the line, they connect you immediately. The IRS doesn't know or care that a system has been holding for you - when they answer, you're the one who takes the call. The IRS won't give investment advice, but they absolutely can clarify tax rules about MAGI calculations and Roth IRA eligibility based on your specific income situation. I specifically asked about how wash sales and certain capital loss carryovers affect MAGI for Roth contribution purposes, and they gave me clear guidance that aligned with the tax code.
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StardustSeeker
I have to admit I was super skeptical about Claimyr when I saw it mentioned here, but I was desperate after trying to reach the IRS three separate times about my MAGI calculation with no luck. Decided to give it a shot, and within 90 minutes I got a call back and was connected to an IRS agent! The agent confirmed exactly how my capital gains should be treated for MAGI purposes and clarified that even though I was over the limit, I could still do the backdoor Roth method. Saved me hours of frustration and possibly an audit if I had contributed directly to a Roth when I wasn't eligible.
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Paolo Marino
Something important nobody's mentioned yet - there's also the possibility of doing a Roth contribution and then recharacterizing it later if you find out your income was too high. You have until the tax filing deadline (plus extensions) to do this. Might be a good option if you're on the borderline and want to contribute now but aren't sure where your final MAGI will land.
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Dmitry Volkov
•This is interesting! How exactly does recharacterization work? Would I just move the money from my Roth to a Traditional IRA if I find out I was over the limit?
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Paolo Marino
•Recharacterization means you're essentially treating the contribution as if you had made it to a Traditional IRA from the beginning, rather than to a Roth. You would contact your IRA custodian and request to recharacterize your Roth contribution to a Traditional IRA contribution. The custodian will transfer the contribution amount plus any earnings (or minus any losses) attributable to that contribution from your Roth IRA to your Traditional IRA. It's important to note that this needs to be done before your tax filing deadline including extensions (typically October 15th of the following year).
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Amina Bah
Something to consider - you might also want to look at tax-loss harvesting before year-end to potentially lower your MAGI. If you have any investments with unrealized losses, selling them could offset some of your gains and potentially get you under the threshold.
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Oliver Becker
•But be careful with wash sales if you do this! If you buy back the same or substantially identical security within 30 days before or after selling at a loss, you can't claim the loss for tax purposes.
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Savannah Glover
Just to add another perspective - if you're really close to the income limits, you might also want to consider maximizing your 401(k) contributions if you haven't already. Traditional 401(k) contributions reduce your AGI (and therefore your MAGI), which could potentially bring you back under the Roth IRA phase-out range. For 2025, you can contribute up to $23,500 to a 401(k) ($31,000 if you're 50 or older). Even if you can't max it out completely, every dollar you contribute reduces your MAGI dollar-for-dollar. This strategy works especially well if your employer offers matching contributions too.
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Esteban Tate
•This is such a great point! I completely overlooked the 401(k) strategy. With $130k salary plus $40k gains putting me at $170k MAGI, if I could max out my 401(k) at $23,500, that would bring me down to around $146,500 - right at the beginning of the phase-out range! That means I could still make at least a partial Roth contribution. Do you know if there's a deadline for increasing 401(k) contributions for this year, or can I adjust it anytime through my employer?
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