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Does a military pension count toward income levels for Roth contributions?
– Gail
Congratulations on earning your service pension. Whether it’s due to your own service or a spouse’s service, you’ve earned it.
On one hand, military pensions don’t meet the “earned income” requirement necessary to qualify for a Roth contribution, meaning a pension alone won’t allow you to contribute. However, they are included in your modified adjusted gross income (MAGI), which can affect whether you stay within the income limits for making a full or reduced Roth IRA contribution.
Let’s take a closer look at the specific ways in which a military pension affects your Roth contribution planning. (And if you have similar questions to this one, consider matching with a financial advisor and talking it over.)
To qualify for a Roth IRA contribution in the first place, you must have earned income. Regular wages, a salary, commissions or self-employment income all count as earned income. It’s compensation that you receive as a direct result of performing a job.
It explicitly does not include income that you earn from passive activities like rental income, stock dividends and interest payments that you receive from investments. Traditional sources of retirement income like Social Security, annuity payments and pensions also do not count.
If the military pension is the only income you have, you unfortunately cannot contribute to a Roth IRA. (A financial advisor can help you manage your income streams and adopt specific strategies for each.)
While earned income is required to contribute to a Roth IRA, there are also limits on how much you can earn and still qualify to contribute to a Roth IRA. Because you mentioned income levels, I suspect this is most likely what you’re referring to in your question. That’s because your allowable Roth contribution starts to fall once your income reaches a certain level. It continues to fall or “phase out” as your income gets higher. Once your income reaches the upper limit of the phaseout range you can no longer contribute to a Roth IRA.
For 2024, the Roth IRA income phaseout range is:
|
Single |
Married |
|
|
Full contribution if income is below: |
$146,000 |
$230,000 |
|
Reduced contribution if income is between: |
$146,000 – $161,000 |
$230,000 – $240,000 |
|
No contribution once income reaches: |
$161,000+ |
$240,000+ |
The IRS doesn’t discriminate based on the type of income you have for this rule. It all counts. Specifically, it’s based on your modified adjusted gross income, or MAGI. To determine your MAGI, start with your adjusted gross income (AGI), as taken from your tax return and then add back certain adjustments and deductions. MAGI follows a different calculation depending on its use, so make sure you use the right formula and consult your tax and financial advisor.
