Modified Adjusted Gross Income (MAGI) significantly impacts eligibility for retirement savings plans by determining contribution limits, deductions, and tax benefits. Here’s how it applies to key retirement accounts:
Traditional IRA Deductibility
If you or your spouse are covered by an employer-sponsored retirement plan, MAGI determines whether your Traditional IRA contributions are deductible. For 2024:
- Single filers phase out between $77,000 and $87,000 of MAGI.
- Married joint filers phase out between $123,000 and $143,000.
Exceeding these limits eliminates the deduction entirely.
Roth IRA Contributions
MAGI dictates whether you can contribute directly to a Roth IRA. For 2024:
- Single filers phase out between $146,000 and $161,000.
- Married joint filers phase out between $230,000 and $246,000.
Above these thresholds, direct Roth IRA contributions are prohibited.
Retirement Strategy Impact
- Tax efficiency: Lowering MAGI (e.g., through deductible contributions to 401(k)s or HSAs) preserves eligibility for deductions and credits.
- Penalty avoidance: Exceeding MAGI limits for Roth contributions without using backdoor methods can trigger IRS penalties.
By actively managing MAGI through deductions or income adjustments, you can optimize retirement savings and tax benefits.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-magi-affect-my-eligibility-for-retirement-savings-plans/
