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?

There are two possible answers to this question, depending on whether or not the distribution from the Roth IRA is qualified.

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 Instead, they accumulate on a tax-deferred basis and are tax free when withdrawn from the Roth if the distribution is qualified.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.

(To learn more about Roth IRAs, check out our Roth IRA Tutorial, Tax Treatment Of Roth IRA Distributions and Roth IRA: Back To Basics.)

This question was answered by Denise Appleby
(Contact Denise)


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