Earnings within a Roth IRA are tax free, so are these earnings included in the modified adjusted gross income which is used to determine Roth IRA eligibility?
Earnings on investments within a Roth IRA are neither subject to income tax nor are they included in the IRA owner's income. Instead, they accumulate on a tax-deferred basis and are tax free when withdrawn from the Roth if the distribution is qualified.
If an individual receives a distribution from his/her Roth IRA and the distribution is qualified and therefore tax free, the amount is not included in the individual's income - therefore, it is not included in the modified adjusted gross income (MAGI) to determine Roth IRA eligibility. However, if the distribution is not qualified, then the amount attributable to earnings is included in the individual's MAGI to determine Roth IRA eligibility.
Generally, the answer is no. However, if you converted an IRA or a Qualified Plan to a Roth, the income realized on the transaction is included for purposes of modified AGI. Check out this worksheet on the IRS's website: https://www.irs.gov/publications/p590a/ch02.html
Earnings from the Roth IRA do not count toward income unless you were to take a non-qualified distribution from your Roth IRA, in which case the distribution COULD be taxable. This page from IRS.gov explains more about qualified vs. non-qualified Roth IRA distributions.
But, the easy answer is, if you keep the earnings in the Roth IRA, they do not count toward earnings and are not taxable. And, at no point are you ever forced to take distributions on a Roth IRA, unlike a Traditional IRA, where Required Minimum Distributions begin the year (or year following the year) in which you turn 70 1/2.
Joe Allaria, CFP®
No. If I understand your question correctly, you are asking if the earnings on assets within the Roth IRA count toward MAGI? And if MAGI is used to see if you can contribute to the Roth? The answers are no and yes, respectively.
The earnings INSIDE the Roth DO NOT count towards MAGI and yes, MAGI is used for Roth income limits.
We produced a very short video to help explain the Roth for our clients:
Mark Struthers CFA, CFP®