Does a Modified Adjusted Gross Income Include 401(k) Contribution?

Your modified adjusted gross income can turn out a lot higher than your regular AGI. Although your taxable income is primarily based on your AGI, MAGI still has a big impact. Your eligibility for multiple tax breaks and tax credits shrinks -- and eventually disappears -- as your MAGI gets higher. Fortunately, 401(k) contributions aren't part of your MAGI.

What Is MAGI?

MAGI is your adjusted gross income -- adjusted a little further. Unfortunately, the adjustment is upwards, by removing various deductions you claim on your 1040. The exact calculations vary depending whether you're looking at how MAGI affects educational tax breaks, Roth IRAs or Medicare. Generally, if you deducted such things as tuition write-offs, IRA contributions or foreign income to figure your AGI, you add them back in to figure your MAGI.


If your MAGI gets too high, it can really throw a wrench in the tax-planning works. Consider Roth IRAs, for example. As of 2013, you can contribute up to $5,500 a year. If you file a joint return with income over $178,000, the limit on Roth contributions gets lower, until at $188,000, it's completely gone. If you live with your spouse but file separate returns, the cut-off for Roth contributions is $10,000.

MAGI and 401(k)

Although IRA contributions are counted as MAGI income, 401(k) contributions aren't. The Fairmark investment-guide website says this gives you a strategy for avoiding the nasty effects of a high MAGI. If you think your MAGI this year is, say, going to restrict your Roth contributions, increasing your 401(k) contributions lowers your gross income, and your MAGI with it. MAGI not only affects your Roth, but education-expense write-offs and the earned income tax credit.


If funding your 401(k) doesn't do the trick, deferring some of your income to next year might help lower your MAGI. For example, you could ask your boss to delay your December bonus until January, or, if you have your own business, hold off billing customers until then. This only works if your income's going to be lower next year. One good bit of news -- if you convert money from an IRA to a Roth IRA, the conversion isn't included when you add up your MAGI for the year.


About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.