What is Modified Adjusted Gross Income (MAGI)? Definition of Gross Income

(July 31st, 2009)

Your modified adjusted gross income for purposes of Roth IRA is your adjusted gross income shown on your tax return modified as follows:

1. Subtract the following

a. Roth IRA conversions included on IRS Form 1040 line 15(b) + Form 1040A line(11b) or Form 1040NR line16(b).

b. Minimum required distributions from IRAs (for conversions or rollovers from qualified retirement plans only).

c. Roth IRA rollovers from qualified retirement plans shown on IRS Form 1040 line(16b), Form 1040A line12(b) or Form 1040NR, line(17b).

2. Add the following deductions and tax exclusions

a. Student loan interest deductions
b. Tuition & education fees deductions
c. Traditional IRA deduction
d. Exclusions from foreign earned income
e. Exclusion from foreign housing income
f. Exclusion from bond income shown on Form 8815
g. Exclusion of employer provided adoption benefits shown on Form 8839.

Adjusted Gross Income?

Adjusted Gross Income (AGI) is a taxation term used in the United States that calculates a person’s tax liability to the IRS at a given year end. AGI is calculated by taking gross income and subtracting certain deductions.

Definition of Gross Income

Gross income is the addition of employment income, wages, bonuses and the following:

- Interest income from banks/stocks/bonds
- Dividend income from stocks
- Income from retirement accounts
- Capital gains (investment gains)
- Alimonies
- Rental income
- Farm subsidies
- Royalties
- Unemployment income

Total Income is determined on IRS form 1040a http://www.irs.gov/pub/irs-pdf/f1040a.pdf in calculations done from line 7 to line 15. On the other hand, total adjusted gross income is determined from line 16 through to line 21, deriving your total adjusted gross income.