If there's one term on this entire site worth understanding before anything else, it's this one: MAGI, or Modified Adjusted Gross Income.
Every strategy on this site — Traditional IRAs, SEP-IRAs, 401(k)s, FSAs, HSAs — works by doing exactly one thing: lowering your MAGI. Once you understand what MAGI actually is, everything else on this site will make sense. Skip this step, and the rest can feel like financial trivia instead of a real strategy.
What MAGI actually is
MAGI is a specific calculation the IRS and benefits programs use to measure your income. It starts with your gross income — everything you earned before taxes — and then makes a series of adjustments, mostly subtracting certain things the tax code wants to encourage, like retirement contributions.
That's the part almost nobody explains clearly: MAGI is not the same as your paycheck, and it's not the same as your gross income. It's a calculated number, and the calculation includes subtractions that you have some control over.
Why this distinction changes everything
Here's the practical consequence of that definition: if your gross income is $200 over a benefits threshold, you don't necessarily need to earn $200 less to stay eligible. You need your MAGI to be under the threshold — and a $200 contribution to a Traditional IRA does exactly that, dollar for dollar.
"Most people think the only way to stay under a benefits threshold is to earn less. MAGI proves that's not true — you can earn the same amount and simply redirect part of it somewhere that doesn't count against you."
| Term | What it is | Does it determine your benefits? |
|---|---|---|
| Gross income | Everything you earned before any deductions | ✗ No |
| Take-home pay (net pay) | What hits your bank account after taxes and withholdings | ✗ No |
| MAGI | Gross income minus specific allowed adjustments | ✓ Yes |
Which programs actually use MAGI
MAGI-based eligibility applies to most of the major California programs working families interact with:
- Medi-Cal — for most adults and families under 65 (not SSI-linked Medi-Cal, which has different rules)
- Covered California — premium subsidies are calculated directly based on MAGI relative to the Federal Poverty Level
- Children's Medi-Cal — also MAGI-based, with a higher threshold than adult Medi-Cal
SSI and some other programs use different rules
Supplemental Security Income (SSI) and certain other programs use asset tests and different income calculations entirely — MAGI doesn't apply the same way. If you receive SSI, the strategies on this site may not apply to your situation in the same way. Always confirm with your caseworker which rules govern your specific benefits.
How to find your MAGI
The fastest way to estimate your MAGI is to start with your gross income and subtract any pre-tax retirement contributions you're already making, plus a few other specific adjustments like HSA contributions or student loan interest. We cover the practical, step-by-step version of this in How to Read Your Pay Stub and Find Your MAGI.
Try it yourself — quick MAGI estimate
Lower your MAGI, not necessarily your income
Every account and strategy covered on this site — Traditional IRA, SEP-IRA, 401(k), FSA, HSA — works by the same mechanism: redirecting part of your gross income into something the IRS doesn't count toward MAGI. You keep the money. It just doesn't count against your benefits eligibility, and it grows for your future at the same time.
Now that you understand what MAGI is and why it matters, the next step is understanding exactly how the benefits cliff works — the specific way crossing a MAGI threshold can cost you more than the income that pushed you over it.
See your MAGI and your threshold
Enter your income and household size to see exactly where your MAGI sits — and how much room you have before hitting a threshold.
Try the calculator →