Modified Adjusted Gross Income: What Is MAGI?
UPDATED: Feb 17, 2024
It’s important to have a clear view of your finances, and your income is a vital component. Income not only impacts your spending and budget, but also how much you pay in taxes and even impacts retirement planning.
Your modified adjusted gross income (MAGI) is an essential number to understand. Read on to learn about how to calculate it and why it is key for optimizing tax advantages for retirement savings.
What Is Modified Adjusted Gross Income (MAGI)?
Your taxable income is also known as your adjusted gross income (AGI). MAGI is your AGI plus certain additions, like untaxed Social Security benefits or foreign income. Your MAGI determines your eligibility for tax deductions, retirement plans and more.
How To Calculate Your Modified Adjusted Gross Income
Follow these step-by-step instructions to demystify the process of calculating MAGI.
1. Determine Your Gross Annual Income
To calculate your gross annual income, begin by summing up all your income sources. Include your wages, salary, bonuses, and any self-employment earnings. Also, factor in additional sources such as taxable retirement benefits like pension or IRA payments, taxable dividend income, interest and capital gains.
2. Determine Your Adjusted Gross Income
Next, you’ll take your gross income and tally up certain adjustments known as above-the-line deductions. You can find your AGI on line 11 of your 2023 1040 tax return. You could also calculate AGI by subtracting various deductions from your Schedule 1 that are not contained in your main Form 1040.
The categories that can be deducted from your total gross income to determine your AGI include:
- Educator expenses
- Student loan interest deduction
- Qualified business expenses
- Health savings account (HSA) contributions
- Military moving expenses
- Half of self-employment tax
- Qualified retirement contributions
- Alimony payments to a former spouse
3. Add In Your Deductions And Credits
Now, add back certain deductions you accounted for when calculating your AGI. This may involve including deductions for student loan interest, tuition expenses, half of self-employment tax, adoption expense exclusion, excluded foreign income, and passive income losses.
MAGI And Taxes
There are various tax credits you may qualify for depending on your MAGI and life circumstances.
- Education tax credits include the American Opportunity Credit and the Lifetime Learning Credit for eligible education expenses
- Child tax credit for qualifying child and dependent care expenses
- Premium tax credit for health coverage purchased through the Health Insurance Marketplace
MAGI And Retirement Plans
Your MAGI determines if you can contribute to a Roth IRA and whether traditional IRA contributions are tax deductible.
Roth IRA Contributions And MAGI
Limits on how much you can contribute to a Roth IRA depend on your MAGI, and filing status, and can vary by the tax year. For the 2024 tax year, MAGI limits for Roth IRA contributions are as follows:
| 2024 Roth IRA Contribution Limits By Filing Status And MAGI | ||
|---|---|---|
| Filing Status | Modified Adjusted Gross Income | Contribution Limit |
| Married, filing jointly | Under $230,000 | $7,000 (under 50)/$8,000 (50 and over) |
| Married, filing separately (and you lived with your spouse at any time during the year) | $10,000 and over | $0 |
| Single/head of household | Under $146,000 | $7,000 (under 50)/$8,000 (50 and over) |
How To Calculate Your Roth IRA Contribution Limit
Determining your Roth IRA contribution limit based on MAGI involves several steps.
- Determine your filing status and whether you are single, married filing jointly, or married filing separately.
- Calculate your modified adjusted gross income by using your AGI and adding back certain deductions not included in AGI.
- Refer to the Roth IRA phase-out range for your filing status and MAGI to determine your phase-out limit, which is your maximum allowable contribution.
Traditional IRA Contributions And MAGI
Your MAGI can impact your ability to make deductible contributions to a Traditional IRA. Whether you can deduct your contributions to a Traditional IRA depends on your MAGI and whether you or your spouse are covered by a retirement plan at work. We’ve laid out both situations below:
| MAGI And Traditional IRA Contributions In 2024: Covered By A Work Retirement Plan |
||
|---|---|---|
| Filing Status | Modified Adjusted Gross Income | Deductible Amount |
| Married, filing jointly | ≤ $123,000 | Full deduction up to the contribution limit |
| > $123,000 but < $143,000 | Partial Deduction | |
| ≥ $143,000 | No deduction | |
| Married, filing separately | <$10,000 | Partial Deduction |
| ≥$10,000 | No deduction | |
| Single/Head of household | ≤ $77,000 | Full deduction up to the contribution limit |
| > $77,000 but < $87,000 | Partial Deduction | |
| ≥ $87,000 | No deduction | |
| MAGI And Traditional IRA Contributions In 2024: Not Covered By A Work Retirement Plan |
||
|---|---|---|
| Filing Status | Modified Adjusted Gross Income | Deductible Amount |
| Married, filing jointly with a spouse who is not covered by a work retirement plan | Any amount | Full deduction up to the contribution limit |
| Married, filing jointly with a spouse who is covered by a work retirement plan | $230,000 or less | Full deduction up to the contribution limit |
| ≥ $240,000 or more | No deduction | |
| Married, filing separately | <$10,000 | Partial deduction |
| ≥$10,000 | No deduction | |
| Single/Head of household | Any amount | Full deduction up to the contribution limit |
How To Calculate Your Traditional IRA Contribution Limit
Calculating your Traditional IRA contribution limit involves considering factors such as your modified adjusted gross income, whether you're covered by a retirement plan at work, and your tax filing status.
- Determine your filing status and whether you are single, married filing jointly, married filing separately, or head of household.
- Calculate your MAGI by using your AGI and adding back certain deductions not included in AGI, as described above.
- Determine retirement plan coverage by establishing if you or your spouse have a plan at work.
- Refer to the IRS guidelines for the tax year to find the income limits for deductible Traditional IRA contributions.
The Bottom Line: Knowing Your MAGI Can Save You Money
Calculating MAGI involves careful consideration of various income sources and deductions and is pivotal in determining eligibility for deductible contributions to retirement accounts like Traditional and Roth IRAs. As you plan for your financial future, understanding MAGI empowers you to make informed decisions, optimize income tax advantages, and strategically contribute to your retirement savings.
Another tool in making informed financial decisions is the Rocket Money℠ app. Download it today to get started.
Sarah Lozanova
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