Understanding Modified Adjusted Gross Income (MAGI)

Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) with certain deductions added back. It's used to determine eligibility for various tax benefits, deductions, and government programs.

How MAGI is Calculated

1. Start with Total Income: Add all income sources (wages, interest, dividends, etc.)
2. Subtract Above-the-Line Deductions: These reduce your income to get AGI
3. Add Back Certain Items: Add back specific deductions to arrive at MAGI

Common MAGI Add-Backs

• Student loan interest deduction
• IRA deduction
• Tuition and fees deduction
• Foreign earned income exclusion
• Foreign housing exclusion or deduction
• Excluded savings bond interest
• Excluded adoption expenses
• Passive activity losses
• Rental real estate losses

2025 MAGI Income Limits

Roth IRA Contributions

• Single: Phase-out begins at $153,000, complete at $161,000
• Married Filing Jointly: Phase-out begins at $240,000, complete at $250,000

Traditional IRA Deductions (with workplace plan)

• Single: Phase-out begins at $73,000, complete at $83,000
• Married Filing Jointly: Phase-out begins at $116,000, complete at $136,000

Education Credits

• American Opportunity Credit: Phase-out at $80,000-$90,000 (single)
• Lifetime Learning Credit: Phase-out at $69,000-$138,000 (single)

Student Loan Interest Deduction

• Single: Phase-out begins at $75,000, complete at $90,000
• Married Filing Jointly: Phase-out begins at $155,000, complete at $185,000

Key Uses of MAGI

Retirement Accounts

MAGI determines whether you can contribute to a Roth IRA and whether your traditional IRA contributions are tax-deductible if you have a workplace retirement plan.

Health Insurance

For ACA marketplace plans, MAGI determines eligibility for premium tax credits and cost-sharing reductions. Generally, you qualify if MAGI is between 100% and 400% of the federal poverty level.

Medicare Premiums

High-income earners pay Income-Related Monthly Adjustment Amounts (IRMAA) for Medicare Part B and Part D based on MAGI from two years prior.

Planning Strategies

• Maximize Pre-Tax Contributions: 401(k), HSA, and FSA contributions reduce MAGI
• Time Income and Deductions: Defer income or accelerate deductions when near thresholds
• Consider Tax-Loss Harvesting: Offset capital gains to reduce MAGI
• Use Tax-Advantaged Accounts: Municipal bonds and Roth accounts don't increase MAGI