Modified Adjusted Gross Income (MAGI) is an important factor in determining your eligibility for various financial benefits such as tax credits, subsidies, and deductions. It can also help you qualify for an income that is under the maximum allowable amount to contribute to a Roth IRA in a tax year. The higher your MAGI, the lower the benefits you may receive. Therefore, it is important to consider ways to lower your MAGI. If you’re self-employed, there can be other ways to lower MAGI. But for a large segment of the population, you’ll discover the 3 ways to cut your modified adjusted gross income.
Contribute to a Retirement Plan
Perhaps one of the easiest and most beneficial ways to lower your MAGI – contribute to a retirement plan. These plans are usually payroll-deducted, and can be easy to enroll into at work. You will need to make sure you’re eligible to contribute (check with your benefits coordinator if unsure), but assuming you are, it can provide a great way to cut your MAGI & save for retirement.
You do want to make sure it’s a pre-tax account. In other words, they are tax-deductible. Examples like this include a 401(k) plan, 403(b), 457 plan, or Thrift Savings Plan. You’ll also want to be aware of the contribution limits, which can decrease MAGI.
Contribute to a Health Savings Account (HSA)
Health savings accounts (HSAs) are very similar to retirement plans in their tax treatment. That said, they have an added benefit of tax-free withdrawals if used for qualified medical expenses. There are certain requirements to use this type of account, such as having a high-deductible health plan (HDHP), and there are contribution limits much like the retirement plans. But this can be a great tool to serve numerous purposes, including lowering your modified adjustment gross income.
Sell Taxable Investments at a Loss
Nobody enjoys losing money. If you do, well I don’t know what to tell you. But in the event you have a taxable brokerage account, and your funds or stocks just aren’t performing well, you can find a silver lining.
In the event you sell funds from your taxable account, any capital losses you may have will offset capital gains. If you have greater capital losses than capital gains, you could apply $3,000 of losses to offset ordinary income. The IRS explains this in more detail, but your MAGI could be lowered in this example.
Speak with your financial advisor prior to doing this, however, since there are numerous factors to consider.
Conclusion
Taxes can be a burden. Unfortunately, the more money you make, the more money the (the IRS) takes. How can you effectively lower that amount yet still benefit yourself? By utilizing these 3 ways to cut modified adjusted gross income, you can set yourself up for more credits, deductions & subsidies. No one will argue with that!
