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1) What constitutes MAGI? I found "Adjusted gross income ("AGI") represents your total income reduced by certain deductions known as "adjustments," but before you take your itemized deduction or standard deduction, and before you take the deduction for personal exemptions."

So would this mean our collective income from Box #2 from our W-2s? Would this not include the IRA distributions (of $8.5K)?


Start by doing the Roth MAGI calculation in Pub 590. This will tell you whether you have a tax problem or a TaxCut problem.

2) If it turns out our MAGI does exceed that limit, then in performing the recharacterization of a certain portion of that $8.5K to get us beneath the $100K limit, would we be subject to any fees or penalties?

When you do the MAGI calculation you'll see that the Roth conversion income isn't part of MAGI. Thus, if you recharacterize you won't change MAGI.

Let's identify the problem before we worry about fixing it. Do the MAGI calculation and get back to us.

Phil
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