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How MAGI is calculated and why it quietly drives your costs

Written by: New York Life Editorial Team

Reviewed by: New York Life Compliance Team

Updated: October 29, 2026

Imagine you and your spouse are retired and have a combined income of $218,000. Then you decide to withdraw an extra $2,000 from your traditional IRA to cover an unexpected expense. Later on, you find out that the extra $2,000 raised your modified adjusted gross income (MAGI) and pushed you into a higher Medicare premium bracket. Now, you’re paying nearly $2,000 more per year just in Part B premiums.

Understanding how MAGI works gives you a chance to plan ahead, especially when you’re making big financial decisions in retirement.

Key takeaways

  • Your modified adjusted gross income (MAGI) helps determine what you pay for Medicare, whether you qualify for certain tax benefits, and more.
  • Medicare generally looks at your MAGI from two years earlier when calculating premiums.
  • A large retirement withdrawal, Roth conversion, investment gain, or business sale could push your MAGI high enough to trigger additional costs.
  • Knowing how MAGI is calculated can help you make more informed decisions about when to withdraw, convert, or invest your money.
Couple reviewing retirement income and Medicare planning with a financial professional.

What is modified adjusted gross income (MAGI)?

Your MAGI is used to calculate everything from Medicare premiums and Marketplace health insurance tax credits to whether you qualify for a Roth IRA.1 You could have different MAGI numbers depending on what it’s being calculated for.

Generally, you calculate your MAGI by starting with your adjusted gross income (AGI), which you’ll find on your federal tax return. Your AGI includes income from things like your paycheck, investments, and retirement accounts, minus certain deductions. From there, you add back certain income or deductions, depending on what MAGI is being used.2

 

How does MAGI affect Medicare premiums?

Medicare generally looks at your MAGI from two years earlier to determine what you pay for premiums. So your 2026 premiums are usually based on your 2024 tax return, using your AGI plus any tax-exempt interest.3

Most people pay a standard monthly premium for Medicare Part B, which is $202.90 for 2026. But if your income exceeds certain limits, you’ll pay more through something called an income-related monthly adjustment amount (IRMAA).

Here’s how that amount increases as your MAGI rises:4

2026 MAGI, individual

2026 MAGI, married filing jointly

Monthly Part B premium per person

$109,000 or less

$218,000 or less

$202.90

$109,001–$137,000

$218,001–$274,000

$284.10

$137,001–$171,000

$274,001–$342,000

$405.80

$171,001–$205,000

$342,001–$410,000

$527.50

$205,001–$499,999

$410,001–$749,999

$649.20

$500,000 or more

$750,000 or more

$689.90

Note: If your income has dropped because of certain qualifying events since the tax year Medicare is reviewing, you could ask Social Security to recalculate your premiums using more recent income information.5

 

Does MAGI affect Roth IRA eligibility?

Unlike traditional IRAs, Roth IRAs have income limits that determine whether you can contribute directly to one. For 2026, your ability to contribute to a Roth IRA starts phasing out once your MAGI reaches:6

  • $153,000 to $168,000 for single filers and heads of household
  • $242,000 to $252,000 for married couples filing jointly

Once your MAGI reaches the top of your applicable range, you generally can’t contribute directly to a Roth IRA. However, you may still be able to use a backdoor Roth IRA conversion if you want to take advantage of the tax benefits. With a backdoor Roth conversion, you make a contribution to a traditional IRA and then transfer that money to a Roth IRA.

Just know that a conversion could come with a tax bill and, because taxable conversions increase your income, they could also affect your Medicare premiums down the road.

 

What other costs can MAGI affect?

Medicare and Roth IRAs aren’t the only things tied to your MAGI.

  • Marketplace health insurance savings. If you buy health insurance through the Marketplace, your household MAGI helps determine whether you qualify for premium tax credits that lower your monthly premiums.3
  • Net investment income tax (NIIT). If your MAGI exceeds $200,000 as a single filer or $250,000 as a married couple filing jointly, you may owe an additional 3.8% NIIT tax on certain investment income.7

 

How can you manage MAGI?

You can’t always control how much money you make, but you may have some say in when that income shows up on your tax return.

Here are five ways to potentially lower your MAGI or avoid an unexpected spike.

  • Contribute more to pretax retirement accounts. If you’re still working, putting more into a traditional 401(k) or similar workplace retirement plan could lower your taxable income for the year. Just remember that you’ll generally pay taxes when you withdraw that money later.
  • Think about the timing of Roth conversions. Converting $100,000 in one year could have a very different tax impact than spreading that conversion across several years. If you’re planning a large conversion, it’s worth running the numbers first.
  • Be intentional about selling investments or a business. Selling stocks, other investments, or a business at a profit could increase your MAGI. If you’re planning a major sale, check how the taxable gain could affect Medicare premiums and other income-based costs before deciding when to sell.
  • Consider qualified charitable distributions (QCDs). If you’re at least age 70½, you may be able to donate money directly from your IRA to an eligible charity without adding that distribution to your taxable income. QCDs can also count toward your required minimum distribution (RMD).8
  • Give yourself options in retirement. Having money in a mix of taxable, tax-deferred, and Roth accounts means you don’t have to rely entirely on taxable retirement withdrawals whenever you need extra cash. Qualified Roth withdrawals, for example, generally won’t increase your MAGI.

 

How can life insurance fit into MAGI planning?

Having different places to pull money from in retirement gives you more flexibility. And depending on your situation, cash value from a permanent life insurance policy could be another option.

For example, say your HOA (homeowners association) hits you with a surprise $15,000 assessment for hail-damaged roofs. You could withdraw that money from your traditional IRA, but doing so would generally increase your taxable income. Depending on where your MAGI falls, that withdrawal could also push you into a higher Medicare premium bracket.

But if you have a permanent life insurance policy with enough available cash value, you may be able to access that money without increasing your MAGI.

Of course, policy loans accrue interest and can reduce your cash surrender value and death benefit. You could also owe taxes if your policy lapses or is surrendered with an outstanding loan. The tax treatment of withdrawals also depends on the policy, including whether it’s classified as a modified endowment contract.

 

Why MAGI planning is a multi-year decision

MAGI is tricky because a financial decision you make today could affect what you pay years from now. But knowing that gives you an advantage: You can look at the potential costs before deciding when to withdraw money, sell investments, or convert retirement savings to a Roth IRA.

A financial professional can help you run the numbers and think through the trade-offs, so you can move forward with more confidence.

 

Frequently asked questions

MAGI starts with your adjusted gross income (AGI), then adds back certain income or deductions. The tricky part is that different programs calculate MAGI differently. So the number Medicare uses may not be the same one used to determine your Roth IRA eligibility.

IRMAA stands for income-related monthly adjustment amount. It’s an extra charge that people with higher incomes pay for Medicare Part B and Part D. Medicare generally uses your income from two years earlier to determine whether you owe it.

If your MAGI is too high, you may not be able to contribute directly to a Roth IRA. For 2026, contributions phase out between $153,000 and $168,000 for single filers and $242,000 and $252,000 for married couples filing jointly.6

There’s no income limit on Roth conversions, even if you earn too much to contribute directly to a Roth IRA. Just remember that converting pretax money generally increases your taxable income, which could affect your Medicare premiums and other costs.

Potentially. You may be able to keep your MAGI lower by spreading out investment gains, timing Roth conversions, making eligible QCDs, or drawing from accounts with different tax treatments. The best approach depends on your income and retirement goals.

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1HealthCare.gov. “Modified Adjusted Gross Income (MAGI),” accessed October 8, 2026.

2Internal Revenue Service. “Modified adjusted gross income,” accessed October 8, 2026.

3Social Security Administration. “Modified Adjusted Gross Income (MAGI).” Updated December 2, 2025.

4Centers for Medicare & Medicaid Services. “2026 Medicare Parts A & B Premiums and Deductibles.” November 14, 2025.

5Social Security Administration. “Overview of New Initial Determinations on the Income-Related Monthly Adjustment Amount (IRMAA) Using Beneficiary Provided Information,” updated June 5, 2026.

6Internal Revenue Service. “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500.” November 13, 2025.

7Internal Revenue Service. “Questions and Answers on the Net Investment Income Tax,” accessed October 8, 2026.

8Internal Revenue Service. “Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs).” 2026.

Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.