Educational information, not individual financial advice.
Key Takeaways
The IRS uses two closely-related income measures that get confused constantly. Knowing which one a rule uses changes whether a strategy works.
Adjusted Gross Income (AGI) = Total income − above-the-line deductions.
Total income includes wages, interest, dividends, capital gains, business income, retirement distributions, and Social Security (taxable portion). Above-the-line deductions are a specific list:
AGI is the line on Form 1040 that almost every other tax calculation chains off of.
Modified Adjusted Gross Income (MAGI) = AGI + a specific add-back list.
The catch: there's a different MAGI for each rule. The add-backs vary. The most common:
When a rule says "MAGI," check the actual definition for that rule. Don't assume your Roth-MAGI equals your IRMAA-MAGI.
Three places where mixing them up leads to bad decisions:
Roth IRA contribution decision. The Roth limit phases out between specific MAGI thresholds. If you're using AGI to estimate, you might think you're in the clear and discover at tax time that you over-contributed. The fix isn't easy: you have to recharacterize or pay a 6% excise.
IRMAA cliff (Medicare). Medicare Part B + D premiums step UP at six MAGI brackets. The lookback uses MAGI from two years prior — meaning Roth conversions you do at 63 affect your Medicare premiums at 65. The MAGI here includes tax-exempt muni interest, which trips up many filers.
NIIT (3.8% surtax on investment income). The NIIT MAGI threshold is $200k single / $250k married. If your AGI is under but your MAGI (with the foreign-earned-income add-back) is over, you owe the surtax.
A useful rule of thumb: AGI is what your taxes are computed on; MAGI is what determines whether you qualify for various income-based things. The difference is small for most domestic W-2 filers (often a rounding error), but it can be large for: filers with foreign income, filers with significant tax-exempt interest, filers with deductible IRA contributions, and filers near the IRMAA / NIIT / Roth phase-outs.
The Horizons engine computes AGI on every projection year. When a rule needs MAGI, the engine derives the right MAGI for that specific rule using the engine's internal definitions. The MAGI you see in the breakdown is the AGI-based proxy that's accurate for most use cases.
Look up the form-specific MAGI definition. The IRS publishes a worksheet for each rule that uses MAGI — Form 8606 for IRA limits, Form 8960 for NIIT, etc. The worksheet tells you exactly what to add back to AGI for that calculation.
Or, more practically: run the Horizons /taxes page — the engine computes the right MAGI for every test it runs and surfaces it in the drill-down panels.
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