The Seven MAGI Calculations
Modified Adjusted Gross Income (MAGI) is a key calculation used by tax professionals and government agencies to determine an individual’s eligibility for various tax credits, deductions, and other considerations. It is based on an individual’s Adjusted Gross Income (AGI) with addbacks specified in the Internal Revenue Code. The concept of MAGI may seem straightforward; however, did you know that the IRS has seven separate definitions? Learn more about each definition and its benefits below:
MAGI Definition 1
Roth IRA Contribution Eligibility
Calculation:
- Adjusted Gross Income (AGI)
- IRA Deductions
- Income from IRA to Roth IRA Conversions
- Qualified Retirement Plan Rollovers to Roth IRA
MAGI Definition 2
Net Investment Income Tax
Calculation:
- AGI
- Foreign Earned Income Exclusion and Adjustments for Foreign Investments
- Foreign Earned Income Deductions
MAGI Definition 3
Coverdell ESA Contributions and Tax Credit Eligibility Phaseouts (Education, Clean Energy, Adoption, Child, and Savers credit)
Calculation:
- AGI
- Foreign Housing Exclusion
- Foreign Earned Income Exclusion
- Foreign Housing Deduction
- Puerto Rico and American Samoa Residents’ Excluded Income
MAGI Definition 4
Student Loan Interest Deduction Phaseout
Calculation:
- AGI
- Foreign Earned Income Exclusion
- Foreign Housing Exclusions and Deduction
- Exclusion of Income by Bona Fide Residents of American Samoa and Puerto Rico
MAGI Definition 5
IRA Deduction Eligibility
Calculation:
- AGI
- Student Loan Interest Deduction
- Total Foreign Income and Housing Exclusions
- Foreign Housing Deduction
- Excludable Savings Bond Interest
- Foreign Earned Income or Housing Excluded From Income
MAGI Definition 6
ACA Premium Tax Credit Eligibility
Calculation:
- AGI
- Excluded Foreign Income
- Nontaxable Social Security Benefits (Including Tier 1 Railroad Retirement Benefits)
- Tax Exempt Interest
MAGI Definition 7
Medicare Part B/D Premiums (IRMAA)
Calculation:
- AGI
- Tax Exempt Interest
With so many definitions of MAGI, it is vital for advisors to understand not only the calculations, but also how these definitions apply to client eligibility for tax-advantaged account contributions, deductions, credits, and even the cost of certain medical insurance premiums. This understanding can help you pinpoint areas where a client’s financial strategy can be significantly affected.
For Use with the General Public. Financial Planning and Advisory Services offered through Vicus Capital, Inc., a federally Registered Investment Advisor.
