Priya is 41, single, and thought she'd done the responsible thing. She maxed her workplace 401(k), then sent $7,500 to her Roth IRA in January 2026, the full annual limit. Her salary is $148,000. Comfortably under the Roth cutoff, she figured. Then a year-end bonus, a chunk of $3,200 in tax-exempt municipal bond interest, and some freelance income pushed the number she actually has to use higher than she expected.
Here's the trap. The figure that decides whether you can fund a Roth isn't your salary, and it isn't even your Adjusted Gross Income (AGI). It's your Modified Adjusted Gross Income, your AGI with several deductions and exclusions added back in. For 2026, a single filer can contribute the full amount only with a MAGI below $153,000. Between $153,000 and $168,000, the allowed contribution shrinks on a sliding scale. Above $168,000, it's zero. Married couples filing jointly get a wider band: full contribution under $242,000, phasing out to nothing at $252,000.
Priya's AGI landed at $151,000, which felt safe. But MAGI adds her tax-exempt interest back. That $3,200 in muni interest never showed up on her AGI line, so it never crossed her mind. Add it back and her MAGI is $154,200, just over the $153,000 line. She's no longer eligible for a full Roth contribution. Part of what she already deposited is now an excess contribution, and the IRS charges a 6% penalty for every year an excess sits in the account uncorrected. The fix is recoverable but annoying: withdraw the excess plus its earnings before the tax deadline, or recharacterize it as a traditional IRA contribution. She'd rather have known her real number in January than discovered it in April. That's the entire point of running MAGI before you act, not after.