- An individual's adjusted gross income, or AGI, is the total income received minus tax deductions known as adjustments. AGI does not include itemized or standard deductions or any personal exemptions. You calculate modified adjusted gross income by taking your AGI, then adding back any adjustments like foreign income; foreign-housing deductions; an employer paid adoption expense; any interest from student loans deducted; any traditional IRA contribution amounts deducted; and deductions for higher-education costs.
- For anyone who wishes to contribute to a Roth IRA, the modified adjusted gross income, or MAGI, is a critical number. Any contribution made to a Roth IRA is not tax-deductible regardless of your participation in an employer plan. However, if your MAGI exceeds certain levels, your contribution amount may be reduced or eliminated. At the time of publication, if you are a single filer and make up to $107,000, you are able to contribute up to $5,000 if you are under the age of 50 and $6,000 if you are over 50. From $107,000 to $122,000, your maximum contribution level decreases. Any amount of MAGI over $122,000 makes you ineligible to contribute to a Roth IRA. For anyone filing a joint return, you may contribute up to the single filer limits if your joint MAGI is $169,000 or below. If your MAGI falls between $169,000 and $179,000, then you are eligible to contribute a reduced amount. If your joint MAGI comes in over $179,000, then neither you or your spouse is eligible to contribute to a Roth IRA.
- In contrast to Roth IRAs, traditional IRA contributions are tax-deductible. Again, any participation in an employer sponsored retirement plan does not affect the amount you can contribute to a traditional IRA. Again, the key figure that can affect your contribution to a traditional IRA is MAGI. Your tax deduction can lessen or be eliminated if your MAGI exceeds certain levels set by the Internal Revenue Service, or IRS. At the time of publication, if you are covered by a retirement plan at work, you may deduct up to the limit as a single filer if your MAGI is less than $56,000. A reduced deduction is available from $56,000 to $66,000. No deduction is available if your MAGI is over $66,000. As a joint filer with a retirement plan at work, you may deduct up to the limit if you make less than $90,000. From $90,000 to $110,000, a reduced deduction is available. If your income is over $110,000 then no deduction is allowed.
- As of 2011, if you are a single filer and not covered by a retirement plan at work or if you are filing jointly and neither you or your spouse is covered by a retirement plan at work, you may contribute up to the limit regardless of your income. However, if you file jointly and are not covered by a employer sponsored plan but your spouse is, you are subject to MAGI limits. If your MAGI is less than $169,000, then you are eligible to deduct up to the limit of your contribution. Any MAGI between $169,000 and $179,000 the contribution limit reduces. Finally, any MAGI over $179,000 means that any contribution made to a traditional IRA is not tax deductible.
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