Explanation of MAGI, or Modified Adjusted Gross Income. There are various definitions of MAGI used throughout the U.S. tax code. This video discusses the six you’re most likely to come across in retirement planning:
👉 MAGI for deductibility of traditional IRA contributions
👉 MAGI for eligibility of making Roth IRA contributions
👉 MAGI for Medicare premium surcharges known as IRMAA
👉 MAGI for ACA premium tax credit eligibility
👉 MAGI for the Net Investment Income Tax, or NIIT
👉 Provisional Income (not really a MAGI…) for determining how much of your Social Security benefits may be federally taxable
Links in this video:
retirement planning Insights –
Taxes in Retirement –
#MAGI #ModifiedAdjustedGrossIncome #TaxPlanning
DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Tenon Financial LLC make any guarantees to its accuracy….(read more)
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Modified Adjusted Gross Income, or MAGI, is a financial term that refers to a modified calculation of an individual’s gross income. It is primarily used to determine a person’s eligibility for certain tax benefits, deductions, and subsidies.
To understand MAGI, let’s break it down into its components. Firstly, gross income refers to the total income earned by an individual before any deductions or exemptions are applied. This includes wages, salaries, tips, self-employment income, rental income, alimony received, investment gains, and other taxable sources of income.
However, MAGI makes adjustments to this gross income by adding back certain deductions and exemptions that were initially subtracted when calculating the adjusted gross income (AGI). These deductions could be related to student loan interest, IRA contributions, self-employed health insurance premiums, and other deductions allowed by the Internal Revenue Service (IRS).
MAGI is particularly important when it comes to determining eligibility for various tax benefits and subsidies. For example, it is used to determine if an individual is eligible for certain tax deductions such as the student loan interest deduction, self-employed health insurance deduction, or IRA deduction. It also plays a significant role in calculating the tax credits a person may be eligible for, such as the Premium Tax Credit for purchasing health insurance through the Health Insurance Marketplace.
In addition to tax-related benefits, MAGI is also used to determine eligibility for certain government assistance programs like Medicaid and the Children’s Health Insurance Program (CHIP). The Affordable Care Act uses MAGI to assess an individual’s or a household’s income to determine whether they qualify for Medicaid or subsidies when purchasing health insurance through the Marketplace.
Calculating MAGI requires careful consideration of various factors. This can include income from sources such as wages, self-employment, rental income, and capital gains. Additionally, it accounts for modifications by adding back certain deductions like student loan interest, IRA contributions, and self-employed health insurance.
It’s important to note that MAGI calculations can vary depending on the specific purpose for which it is being used, as different programs and benefits may have their own definitions and criteria. Therefore, it is essential to consult the respective guidelines or speak to a tax professional or financial advisor for accurate calculations.
Understanding MAGI is crucial for accurate tax planning and financial decision-making. By comprehending how modifications to gross income can impact tax benefits, deductions, and subsidy eligibility, individuals can make informed decisions to optimize their financial situation.
This is one of the best overall explanations I've come across looking for this information. I hope you have a video more in depth about the MAGI relating to the ACA Premium Tax Credit (PTC), especially an updated one as the ACA legislation has been amended several times since 2020, and may be changed again with the current (May 2023) debt ceiling agreement.
at 4:08 you went over Medicare magi. doesnt RMD from IRA have to be declared?
Hi, will contributing to a 457 b with pretax dollars reduce my MAGI?
Hey Andy, can you put a link to the Roth Contribution Limits (2020 and 2021) video you mentioned at the end of this video? I went to your channel, but I couldn't seem to find it.
That was extremely helpful.
Do the cov19 cares Act 401k withdrawals qualify for a life changing event For the IRMAA? Thanks
Thank you,
Is it safe to say that the only real "deduction" one gets towards calculating MAGI for ROTH CONTRIBUTIONS is Traditional IRA/401k contributions? (aside from lines 5-10 @ 2:54). So HEALTHCARE BENEFIT premiums are NOT deductible when determining MAGI towards ROTH CONTRIBUTIONS, correct? I have seen that listed elsewhere so was confused on if healthcare plan premiums were also deductible here.
Helpful. Thank you.
How do you calculate AGI manually when you might not want to refer to last years tax return to capture that number, since you must be predictive into the next year?
I like this video. Your explanation is straight forward and simple. Subscribed.