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What is Modified Adjusted Gross Income (MAGI)?

Written by Nickel - 19 Comments

In writing about Roth IRA contribution limits (and how to fix Roth IRA contribution mistakes) over the past week, I came to realize that some readers might not be familiar with the term modified adjusted gross income (MAGI). As it turns out, this is a critical value for determining things like whether or not you are eligible to: (1) contribute to a Roth IRA, (2) deduct traditional IRA contributions, or (3) convert funds from a traditional (or SEP) IRA to a Roth IRA. Thus, it’s important that people understand what it is and how it is calculated.

Here’s my understanding of the situation…

In order to figure out your MAGI you first need to know what your AGI represents. In short, your AGI is your total income (including wages, interest, income from retirement accounts, capital gains, and alimony received) less certain “adjustments.” These adjustments include things like deductible IRA contributions, 401(k) or 403(b) contributions, alimony payments, health insurance premiums (if you’re self-employed), moving expenses, and interest on student loans (consult the IRS web site or a tax professional for a full rundown). Note that AGI does not reflect standard or itemized deductions. Nor does is it influenced by personal exemptions.

In order to arrive at your modified AGI, you then need to add back certain things like income that you exluded due to the foreign earned income exclusion, any deductions for foreign housing, interest income for series EE bonds that you may have excluded because you used the proceeds to pay for qualified educational expenses, any deduction that you may have claimed for student loan interest or allowable tuition expenses, employer-paid adoption expenses, and any deduction that you may have claimed for a traditional IRA contribution (note that employer plans, such as 401(k) and 403(b) contributions still reduce your MAGI). Also, if you’re age 70-1/2 and receiving minimum distributions from a traditional, these funds do not count against your MAGI.

As a final note, it’s important to keep in mind that funds being converted from a traditional IRA to a Roth IRA do not count against your MAGI even though they may be taxable.

Published on November 10th, 2006 - 19 Comments
Filed under: Saving & Investing, Taxes

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19 Responses to “What is Modified Adjusted Gross Income (MAGI)?”

  1. 1
    J Says:

    To convert from a rollover to a Roth you have to be under MAGI of $100k right?

  2. 2
    MIke Says:

    Don’t think you’re quite right on how it’s computed. Did a little hunting on the IRS website for the definition of MAGI for Roth IRA contribution eligibility.
    http://www.irs.gov/publication.....l#d0e44219

    According to it, Traditional IRA contributions are added back in, but it doesn’t mention 401K contributions. So increasing your 401K contributions could increase your eligibility.

  3. 3
    nickel Says:

    J: Yes, less than $100k whether or not you’re married. Details in a forthcoming post.

  4. 4
    nickel Says:

    Mike: Correct. That’s what I said. Those things get taken out for AGI, and traditional IRA goes back in for MAGI. So yes, an employer plan can be used to reduce MAGI, but a trad/SEP IRA cannot.

  5. 5
    Rob Says:

    Re: MAGI for IRA purpose, if I have a rental loss on line 17 of 1040 and the loss is included in AGI line 37, do I take the loss out of AGI to derive the MAGI? The MAGI for passive activity loss limitation (Form 8582) excludes the rental loss. Is the MAGI calculation for IRA different from the MAGI calculation for passive acitivy loss limitation?

  6. 6
    Pearl Says:

    My broker tells me that capital gains are deducted from AGI to get MAGI for $100,000 limit for IRA to Roth conversion. does not sound right to me. It it?

  7. 7
    Chris Says:

    Do you know how Social Security Disability is handled when computing MAGI?

  8. 8
    Mike Reed Says:

    New subscriber – where would I find your response to questions 5, 6 & 7 from Nov 10,2006 article about MAGI?

    Great articles!
    Thanks,
    Mike

  9. 9
    Tess Says:

    you mentioned alimony payments but what about child suport. I live in Kansas and my husband pays 50% of his gross to his exwife. can we deduct what he pays?

  10. 10
    ann Says:

    If I made a withdrawal from my 401K to purchase a home (first time buyer) would that amount qualify as MAGI?

  11. 11
    Dean Smith Says:

    There was no mandatory minimum required IRA distributions in 2009. However, I did take some money out. I also did a Roth conversion during 2009. I know the conversion amount is not included in my MAGI, but what about the “voluntary” distributions taken. I believe they are excluded from the MAGI. Is this correct? If not, I will have to re characterize the conversion.

  12. 12
    Alan Says:

    Is tax exempt income (i.e. from tax free municipal bonds) added back in to calculate MAGI?

  13. 13
    Mark Feddersen Says:

    I want to know if using my public employer voluntary distribution pension money for a down payment would count against MAGI?

  14. 14
    Dean Smith Says:

    For Alan: not according to IRS pub 590 and Form 8815

    For Mark: If all of the pension money is rolled-over into Roth, no. Any not rolled over would be counted in MAGI. In 2009, you could not convert (roll-over) any approved pension plan money into Roth if MAGI was over 100K. No such restriction in 2010.

  15. 15
    roger Says:

    Hi, in general MAGI is higher amount than AGI?.
    The IRA distributions is counted or discounted for MAGI purpose?.
    Thanks
    Roger

  16. 16
    Dean Smith Says:

    Download html Pub 590 from IRS.gov; Chapter 2 – Roth IRAs. When I try to download the pdf Pub 590, my computer freezes. Any unconverted IRA distribution adds to MAGI, along with other tax preferences listed in 590.

  17. 17
    A. M. Catanzaro Says:

    According to an article published Jan. 27, 2010 from Kiplinger: http://www.kiplinger.com/featu.....costs.html
    Roth Conversions ARE counted against MAGI.

    Is the information in the article you posted correct or is it outdated?

  18. 18
    David Klokis Says:

    Does capital loses bring down your MAGI, and does realestate taxes reduce the MAGI also?

  19. 19
    V Says:

    Is the SEP deduction on Form 1040 line 38 added back for the MAGI to determine Roth contribution limits? On the ‘MAGI for Roth IRA Purposes IRS’ worksheet it only mentions adding back “Traditional IRA deduction from Form 1040 line 32″. Above in this chain you say IRA/SEP are added back. Why wouldn’t the IRS worksheet mention the line 38 “Self-Employed SEP, SIMPLE and qualified plans in its MAGI worksheet if this is added back? Appreciate help with this.

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