Modified Adjusted Gross Income (MAGI)

Every MAGI begins with adjusted gross income, the figure on line 11a of the 2025 Form 1040. The rule that uses it then writes its own recipe, adding back income that AGI leaves out or deductions that pulled AGI down, and occasionally removing something. Most add-backs are income that escapes income tax but still counts for the rule in question, so the gap between AGI and MAGI is usually widest for retirees and for Americans working abroad. The usual adjustments are:

What happens as MAGI rises depends on the rule, and that decides how much one extra dollar can cost.

Phase-outs shrink a benefit gradually. In 2026 the amount you can put into a Roth IRA falls from the full limit to zero as MAGI moves from $153,000 to $168,000 for a single filer, or from $242,000 to $252,000 for a married couple filing jointly. The $6,000 senior deduction shrinks by 6 cents for each dollar of MAGI above $75,000 ($150,000 joint), so for one person it is gone at $175,000.

Cliffs switch on all at once. One dollar over the first IRMAA threshold, $109,000 single or $218,000 joint, adds $81.20 a month to the Medicare Part B premium and $14.50 to Part D for each enrollee, about $1,148 a year. For 2026 marketplace coverage, premium tax credits end above 400% of the federal poverty line, $62,600 for one person in the 48 contiguous states, so one dollar over can cost the entire credit.

Thresholds sit in between. The 3.8% net investment income tax applies only to the smaller of your investment income or your MAGI above $200,000 ($250,000 joint), so crossing the line costs at most 3.8 cents per extra dollar.

Timing differs as much as the definitions. Roth IRA eligibility uses the MAGI of the year the contribution is for, and because you can contribute until the tax filing deadline the following April, you can wait until you know the figure.

Medicare looks back two years: 2026 IRMAA is set from 2024 tax returns. A large Roth conversion or taxable gain at 63 can therefore raise premiums at 65. If your income has since dropped because of a life-changing event such as retirement, divorce or the death of a spouse, you can ask Social Security to use a more recent year by filing Form SSA-44.

Marketplace premium credits run the other way. You estimate the current year’s MAGI when you enroll, receive the credit in advance and settle up when you file. For 2026 coverage there is no longer any cap on repaying excess advance credit, so an unplanned conversion, bonus or capital gain late in the year can turn into a large bill at tax time.

Most MAGI surprises come from income that feels invisible, or from assuming one MAGI figure fits every rule. They cluster in two stretches: the years between leaving work and enrolling in Medicare, when income is low and flexible and the ACA cliff is closest, and the years after required withdrawals begin, when IRMAA tiers come into play. Before a large conversion, sale or withdrawal, run the numbers through the worksheet for each rule it could touch.

Because every MAGI starts from AGI, the usual ways to lower AGI, such as pre-tax 401(k) deferrals, HSA contributions and, from age 70½, qualified charitable distributions, lower MAGI too. In retirement the bigger lever is which account pays the bills: qualified Roth IRA withdrawals add nothing to MAGI, and cash raised by selling taxable investments counts only to the extent of the gain.

The other lever is timing. Retirees with large pre-tax balances often face higher MAGI once required minimum distributions start than in their early 60s. Filling the low-income years with measured conversions or gains, while staying under the next cliff, can even out income across the whole retirement. A tax-efficient withdrawal strategy counts these thresholds as part of the tax cost of each dollar.