Modified Adjusted Gross Income (MAGI) is the amount of income that determines how much of your Traditional IRA contribution is deductible. The modified adjusted gross income is calculated by taking your adjusted gross income (AGI) and adding back certain items such as foreign income, foreign housing deductions, student loan deductions, IRA contribution deductions, and deductions for higher education costs.
For example, suppose you're single, have a gross income of $49,000, and you're eligible to take a deduction for your IRA contribution of $5,000. Suppose your AGI after all deductions are taken is $42,500. You then add the $5,000 back to find your MAGI of $47,500. Because your MAGI is less than the phase out limit for deducting your full IRA contribution for a single tax filer, you can take the full deduction.
