Your modified adjusted gross income or MAGI is used to determine your eligibility on a number of things. This includes several credits and deductions, Medicare Plan B premiums, and is most known for determining IRA deduction and Roth IRA contribution eligibility.
So, it’s a pretty important number to have handy. There’s just one problem. It’s not the easiest number to figure out.
What is MAGI?
Modified Adjusted Gross Income is your adjusted gross income (AGI) plus a few specific deductions. Since the number is entirely dependent on those deductions, it can change from year to year.
In order to find your modified adjusted gross income, you first need to find your adjusted gross income.
Find Your AGI
Your adjusted gross income is your total or gross income minus certain deductions, known as adjustments. Whether you know it or not, you figure this number out each year when you do your taxes. You can find it on:
- Form 1040, line 38
- Form 1040A, line 22
- Form 1040EZ, line 4
- Form 1040NR, line 37
It’s that simple. Of course, if you are estimating this year’s AGI, you’ll have to go through and estimate your Form 1040 up to that point.
Add The Modified
Now that you have your AGI, you can find your MAGI. To do this you’ll have to add some deductions back into your AGI to find your MAGI:
- IRA deduction
- Student loan interest deduction
- Qualified tuition/fees deduction
- Any domestic production activities deduction
- Income from the foreign earned income exclusion
- Foreign housing exclusion and/or deduction
- Qualified Savings Bond interest income exclusion
- Employer paid adoption expense exclusion
Once you add these deductions back to your AGI, you’ll have your MAGI. So the next time you want to contribute to an IRA, you’ll know if you are eligible.
Lower Your MAGI
Finally, one quick note. Notice that employer retirement plans, like 401k contributions, are not added back to calculate your MAGI. An easy way to lower your MAGI, is to put more money into your retirement plan through work.
Why should you lower your MAGI?
For instance, if you contributed to a traditional IRA but almost eligible for the deduction, you can add to your employer’s retirement plan until it lowers your MAGI to the point of eligibility. You save more for your future, while saving on taxes now.