Understanding MAGI vs AGI: Why These Tax Terms Matter

Understanding MAGI vs. AGI is critical for anyone looking to optimize their tax strategy and retirement planning. These two terms—Modified Adjusted Gross Income (MAGI) and Adjusted Gross Income (AGI)—appear frequently when it comes to things like Roth IRA eligibility, Medicare IRMAA surcharges, and ACA subsidies. In this article, we’ll break down what each one means, how they’re calculated, and why they matter for your overall financial plan.

Understanding MAGI vs. AGI: Why MAGI Matters and What It’s Used For

MAGI is used to determine your eligibility for a number of important financial benefits. Understanding your MAGI can help you avoid unexpected tax costs and qualify for programs that can save you thousands.

1. Affordable Care Act (ACA) Subsidies

If you retire before Medicare eligibility (typically age 65), your health insurance premiums may be based on your MAGI. Subsidies are available through the ACA to lower your premium costs if you meet certain income thresholds.

In 2025, households over 400% of the Federal Poverty Level (FPL) can still receive a partial subsidy:

Single: Over $51,520
Married Filing Jointly: Over $69,020

These expanded subsidies are in effect through at least 2025.

2. Roth IRA Contribution Limits

MAGI also determines whether you can contribute directly to a Roth IRA:

Single or Head of Household: Full contribution if MAGI is under $150,000; phase-out up to $165,000
Married Filing Jointly: Full contribution under $236,000; phase-out up to $246,000

If your income is too high, you may need to explore backdoor Roth strategies.

3. Net Investment Income Tax (NIIT)

An additional 3.8% tax may apply to your investment income if your MAGI exceeds:

$200,000 (single)
$250,000 (married filing jointly)

This tax applies to income from capital gains, dividends, rental income, and more.

4. Medicare IRMAA (Income-Related Monthly Adjustment Amount)

If your MAGI is above a certain threshold, you’ll pay higher premiums for Medicare Part B and Part D. Here’s what the 2025 IRMAA brackets look like:

MAGI (Single)	MAGI (Married)	Monthly Part B Premium
Up to $106,000	Up to $212,000	$185
$106,001-$133,000	$212,001-$266,000	$259
$133,001-$167,000	$266,001-$333,000	$370
$167,001-$500,000	$333,001-$750,000	$490
Over $500,000	Over $750,000	$628.90

This is especially important to plan for in retirement. Future required minimum distributions (RMDs) could push you into higher IRMAA brackets later in life.

Understanding MAGI vs. AGI: Why AGI Is Important

While MAGI is used for specific thresholds and program eligibility, AGI is more commonly referenced in everyday tax planning. It’s the starting point for determining your taxable income and whether you qualify for a variety of deductions and credits.

1. Child Tax Credit

Eligibility for the federal child tax credit is based on your AGI. For 2025:

Single filers: Credit begins to phase out at $200,000 of AGI
Married filing jointly: Phase-out begins at $400,000 of AGI

If your income exceeds these thresholds, the credit is reduced by $50 for every $1,000 above the limit.

2. Medical Expense Deductions

If you itemize deductions, medical expenses must exceed 7.5% of your AGI before they are deductible.

3. Social Security Taxability

Up to 85% of your Social Security benefits may be taxable depending on your AGI and other sources of income.

4. Stimulus Check Eligibility (Past Example)

AGI was used to determine who qualified for stimulus payments during the COVID-19 pandemic. For the third stimulus check (2021):

Single filers: Full $1,400 check if AGI was $75,000 or less; phased out completely at $80,000
Married filing jointly: Full check at $150,000 or less; phased out completely at $160,000

This is a good example of how AGI is often used to determine eligibility for temporary or emergency government benefits.

5. Education Credits and Deductions

Eligibility for some education-related tax benefits is also based on your AGI.

Understanding MAGI vs. AGI: How MAGI and AGI Are Calculated

Understanding how these figures are calculated is essential for accurate planning.

How To Calculate AGI

AGI is your total income minus specific deductions, also known as “adjustments to income.” These can include:

Traditional (pre-tax) 401(k) contributions
Educator expenses
Student loan interest
IRA contributions (deductible)
HSA contributions
Half of self-employment tax
Self-employed health insurance premiums
Alimony paid (for divorces finalized before 2019)

You’ll find your AGI on IRS Form 1040—it’s a line item on the first page.

Understanding MAGI: How To Calculate It

Start with your AGI, then add back:

Tax-exempt interest (e.g. municipal bond interest)
Deductible IRA contributions (in some cases)
Foreign income exclusions
Certain other adjustments depending on the program

There is no single line on your tax return labeled “MAGI”—how it’s calculated can vary slightly depending on the context (e.g. ACA vs. Roth IRA limits), but generally, it starts with AGI and adds back certain excluded items.

Final Thoughts on MAGI vs AGI

MAGI and AGI are foundational concepts that impact your taxes, retirement planning, healthcare costs, and more. Knowing how each one works—and how to manage them strategically—can help you:

Qualify for valuable subsidies
Avoid unnecessary Medicare surcharges
Optimize Roth contributions
Keep your tax burden in check

If you’re preparing for retirement or working to fine-tune your income strategy, understanding MAGI and AGI is a great place to start.

Thanks for reading! Keep an eye out for the companion video walkthrough, which we’ll be posting soon. And if you’d like more helpful insights like this, head over to MoneyEvolution.com.

Disclosure:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Money Evolution and LPL Financial do not offer tax advice or services.