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The IRS uses MAGI to determine if any or all of your IRA contribution is deductible and if you are eligible for premium tax credits. The higher your MAGI, the fewer deductions you can take on IRA contributions. There is a maximum MAGI when if met, IRA deductions aren't allowed. While you can still contribute to an IRA, but you won't be able to deduct any of the contributions on your tax return.

Adjusted Gross Income (AGI)

AGI represents your taxable income. AGI is defined as gross income minus adjustments to income  You can find your AGI at the bottom of page 1 on your income tax return, IRS Form 1040.

AGI is equal to the total income you report that’s subject to income tax such as earnings from your job, self-employment, dividends and interest from a bank account minus specific deductions you’re eligible to take.  AGI does not include the standard deduction or itemized deductions.

Modified Adjusted Gross Income (MAGI)

MAGI represents your total earnings.  The IRS uses your MAGI to determine your eligibility for certain deductions, credits and retirement plans, like eligibility for deductible IRA and Roth contributions.

MAGI is equal to your AGI before taking into account deductible IRA contributions.  MAGI could also be affected by adding back the following:

  • student-loan-interest deduction
  • deduction for higher education costs
  • U.S. Savings Bond interest excluded from taxation because it's used to pay higher-education expenses
  • certain employer adoption-assistance payments excluded from taxation
  • certain foreign earned-income and foreign-housing-cost reimbursements excluded from taxation
  • the deduction for domestic production activities
Things you don't have to add to the AGI:
  • Contributions to employer-sponsored plans, like 401(k)s
  • Taxable income generated by converting to a Roth IRA