What is Modified Adjusted Gross Income?

The modified adjusted gross income is simply the income that the IRS looks at when determining your IRA eligibility. Depending on how high or low your income is you may or not be able to contribute the maximum amount to an IRA and still get the tax benefits.

What is Adjusted Gross Income?

Adjusted Gross Income is the gross income minuses qualified deductions. If you file a 1040 A forum it is the last number at the bottom of page one and is also known as net income. Some of the things that can be taken out to create the Adjusted Gross Income include;

• Moving expenses
• Alimony paid to someone else
• Interest on student loans
• Health Insurance premiums for the self employed
• Early withdrawal penalties

What is Modified Adjusted Gross Income

The MAGI is used for IRA plans and takes out a number of other things such as;

• Deducitions for IRAs
• Foreign “earned money”
• Employer paid adoption expenses
• Passive income (interest, dividends, rental properties, etc)
• Any exclusion or deductions you claimed for foreign housing
• Interest from EE bonds that you excluded because you paid qualified higher education expenses
• Student loans
• Amount claimed as domestic Production activities deduction

This income is the income that will be taken into consideration when you are depositing money into your IRA. And so forth the Roth IRA income limits use this to determine if you are eligible.

Special Note for Roth IRAs

Roth IRAs have a special note, if you have done an IRA to Roth IRA rollover it is counted as AGI, but it is not counted as MAGI for that plan. This is because if it was counted and you had a large IRA account it would prevent you from depositing money into the account or even opening it up for the year that you are rolling over.

Without this, if you had an IRA with $90,000 in it and rolled it over that $90,000 would be counted as income and would most likely put you over the income limit and prevent you from opening a Roth IRA account.

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