How should I calculate the MAGI

[JZ4284]

I am using Turbotax Home and Biz 2024 for my return, I'd like to know EXACTLY how the Modified Adjusted Gross Income (MAGI) should be calculated so I can decide how much my traditional IRA contribution is deductible.

The MAGI is referenced in 2 of the TT worksheets - IRA Deduction Worksheet (line #12) and Roth IRA Contribution Limit Worksheet (line #1) - but TT does not explicitly show how it was calculated. Based on the various numbers on various TT forms, it seems TT calculates the MAGI as the AGI + IRA deduction, but don't I need to know the MAGI first before the IRA deduction can be determined?

On form 1040, the adjusted gross income (AGI) is the difference between total income and Schedule 1 income adjustments, which requires IRA deduction (line #20) as well, which again depends on knowing MAGI first, which means, without MAGI, I should not be able to calculate the IRA deduction and, therefore, AGI.

Based on this IRS site, https://www.irs.gov/e-file-providers/definition-of-adju[product key removed]e#calculatemagi:

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MAGI for traditional IRA deductions

Take your AGI and add:

• Student loan interest deduction
• Excludable savings bond interest
• Employer-provided adoption benefits excluded from income
• Foreign earned income or housing excluded from income
• Foreign housing deduction

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it seems TT's way of calculating MAGI for traditional IRA is wrong - if I do not have the 5 items listed, my MAGI should be the same as the AGI, am I wrong?

I have spent hours trying to wrap my head around this but I am totally lost.

Any help will be greatly appreciated.

Jun

[KeshaH]

The modified AGI on the IRA deduction worksheet comes from the 1040/104SR Worksheet. If you have the desktop program, you can navigate to this page to see how the MAGI is calculating. 

[JZ4284]

@KeshaH appreciate the response.

Can you be more specific? On the 1040/104SR Worksheet I am not seeing any mention of "Modified Adjusted Gross Income" nor the MAGI number used on the IRA deduction worksheet, I did not even see the word "modified".

[dmertz]

To get the IRA Deduction Worksheet in TurboTax, you'll need to enter a proposed traditional IRA contribution.  TurboTax will then inform you of the deductible amount of your proposed traditional IRA contribution.  You can then go back an modify the proposed amount to be the actual amount that you intend to contribute.  With a proposed IRA contribution entered, you can then review the IRA Information Worksheet to see the MAGI that TurboTax calculated.  (Nowhere can you actually view the calculation of MAGI.)

You can calculate MAGI yourself using Worksheet 1-1 of IRS Pub 590-A:

https://www.irs.gov/pub/irs-pdf/p590a.pdf

[JZ4284]

Found some useful info from another thread - https://ttlc.intuit.com/community/taxes/discussion/can-turbotax-tell-me-my-magi-i-saw-the-article-th..., look at the post by Wyner2020 on February 27, 2024 8:51 PM.

Based on TT's explanation, it did calculate the MAGI by adding my deductible traditional IRA contribution and the AGI, but, as I mentioned in my original post, isn't this backward?

Again, based on this IRS site, Link to IRS  to get the MAGI for traditional IRA deductions, I should take the AGI and add the following:

• Student loan interest deduction
• Excludable savings bond interest
• Employer-provided adoption benefits excluded from income
• Foreign earned income or housing excluded from income
• Foreign housing deduction.

So, is TT wrong?

[JZ4284]

My understanding is MAGI determines how much of one's traditional IRA contribution is deductible, if at all, the higher the MAGI the smaller the deductible contribution. So the answer to my question might affect a lot of people.

[dmertz]

There is a bit of good information and a lot of misinformation in the forum post that you linked to.

TurboTax performs the calculation as described in the information that you got from the IRS.

[JZ4284]

@dmertz, thx for the response.

Following is the TT's explanation for how it got the number, I am not sure "TurboTax performs the calculation as described in the information that you got from the IRS.".

Generally, the amount on line 12 (MAGI of the IRA worksheet) will be the amount shown on line 9 (total income) of Form 1040 not including the IRA deduction on Schedule 1 (Form 1040), line 19, the student loan interest deduction on Schedule 1 (Form 1040), line 20, the tuition and fees deduction on Schedule 1 (Form 1040), line 21, series EE bond interest exclusion from Form 8815, excluded adoption benefits from Form 8839, nor the foreign earned income and housing exclusion from Form 2555, line 45. It will include the adjustments on Schedule 1 (Form 1040), lines 10 through 18a, and any amount entered on line 22.

1040/1040SR Wks Adjusted Gross Income xxxx.

Plus the following adjustments added back to Adjusted Gross Income

Schedule 1 IRA deduction xxx
Schedule 1 Student loan interest deduction
Schedule 1 Tuition
Form 8815 Line 14
Form 8839 (Untitled) Line 28
Form 2555 p3-T Line 45
Form 2555 p3-S Line 45

In addition to the above adjustments, if unemployment is excluded on this return under the American Recovery Plan Act of 2021, the amount of unemployment excluded will be added back as well. This amount can be found on line 8 of Schedule 1 with the description "UCE". For example, if Schedule 1 line 8 contains a line with the description "UCE" and an amount of -$10,200, then $10,200 (as a positive amount) will also be added back to Adjusted Gross Income.

However, if you or your spouse also received a distribution from a traditional IRA, a special calculation is made to determine the amount on this line and may not agree with the amount on line 8b of Form 1040.

[dmertz]

Regarding that information that you quoted, that seems to be some old information that applied only to 2020 tax returns.  UCE was a special provision that applied only to 2020 in response to the COVID pandemic.

Refer to Worksheet 1-1 in the 2024 version of IRS Pub 590-A for the current calculation requirements that apply to your 2024 tax return.

[JZ4284]

Thx @dmertz 

- What I quoted was straightly from TT, maybe it needs to be updated if out of date.

- The following line is from Worksheet 1-1. Figuring Your Modified AGI, IRS Pub 590-A, regarding calculating MAGI for traditional IRA purpose:

Enter your adjusted gross income (AGI) from Form 1040, 1040-SR, or Form 1040-NR, line 11, figured without taking into account the amount from Schedule 1 (Form 1040), line 20

Exactly what does "figured without taking into account the amount from Schedule 1 (Form 1040),
line 20" mean here? The AGI is calculated without taking into account the IRA deduction amount (Schedule 1 line 20)? But that's not true because AGI is calculated by subtracting income adjustments (Schedule 1, line 26) from the total income, and income adjustments has IRA deduction figured in. Do I not understand English? lol 

And again, my original question/confusion stands - don't I need to figure out the MAGI first before I can calculate the IRA deduction? Or, is it just as what you mentioned before, this is an experimenting process - you tell TT how much you want to contribute and TT tells you how much of that contribution is deductible?

Thirdly, TT calculates the MAGI by taking the AGI and adding back the IRA deduction, that does not seem to comply with the guide, does it? Not that I am obsessed with finding TT's error, but if it's wrong, a lot of people may end up with smaller amt of IRA deduction.

[dmertz · Accepted solution]

"Exactly what does "figured without taking into account the amount from Schedule 1 (Form 1040),
line 20" mean here?"

It essentially means treating your traditional IRA contribution as nondeductible during the calculation of your MAGI.  On your completed tax return, it would mean adding back the amount on line 20, exactly as you see TurboTax doing.

Unless your MAGI is clearly above of below the phase-out range for your filing status, yes, the MAGI needs to be determined to know how much of a traditional IRA contribution would be deductible.  As I said previously, you can enter the maximum permissible traditional IRA contribution, let TurboTax calculate the amount that would be deductible, then go back and change your contribution entry to be just what is deductible.  Alternatively, you can enter $1 of traditional IRA contribution to cause TurboTax to prepare the Traditional IRA Contribution Worksheet, look at the worksheet to see the MAGI that TurboTax calculated, then do your own calculation of the maximum deductible contribution, although that's a lot more work.

[JZ4284]

@dmertzyours is probably the best answer I can get, I'll take it. Appreciate your time and knowledge.