Earn too much to make Roth IRA contributions? Here are ways you can adjust your income to qualify and boost your retirement riches

Modified adjusted gross income is your adjusted gross income plus certain allowable deductions and tax penalties. It’s an important figure regarding your taxable income.

If you can’t qualify for a Roth IRA based on your income, there’s the option to contribute to a traditional IRA and then convert it to a Roth IRA. The issue there is that you might face a giant tax bill if you convert a large sum all at once. But you may not need to take this backdoor route. Here are a few strategies to lower your MAGI so you’re able to fund a Roth IRA directly.

Max out an HSA

A health savings account (HSA) is a useful tool that lets you contribute pre-tax dollars toward medical spending. Eligibility is based on your health insurance plan. In 2024, you can qualify with individual coverage if you have a minimum deductible of $1,600 and an out-of-pocket maximum of $8,050. With family coverage, these limits rise to $3,200 and $16,100, respectively.

You can contribute up to $4,150 to an HSA in 2024 with individual coverage or $8,300 with family coverage if you're under 55. Once you turn 55, you qualify for a $1,000 catch-up that raises these limits to $5,150 and $9,300, respectively. Maxing out an HSA is a great way to not only set yourself up with health care funds you can carry all the way into retirement, but disqualify some of your income from counting toward your MAGI.

If your health insurance plan isn’t compatible with an HSA, a flexible spending account (FSA) is an option to look at instead. Like HSAs, FSAs reduce your taxable income. They max out this year at $3,200. But do know that FSA funds typically need to be used up year after year or otherwise they get forfeited, whereas HSA funds can be carried forward indefinitely.

Increase charitable contributions

Like HSA contributions, donations to qualified charities can reduce your MAGI. Donating to causes that are meaningful to you is a great way to lower that income legally. As is the case with any tax deduction, it must meet certain guidelines and you'll need documentation of your charitable giving. Keep receipts in a secure place, especially if you're making a donation using physical cash.

Claim self-employment expenses

Whether you’re primarily self-employed or earn a salary but work a side gig independently, expenses you incur in the course of earning money may be considered deductible expenses that reduce your income. For example, if you’re a self-employed tech consultant, you can deduct expenses for equipment you need to perform your job. You might also be able to deduct expenses you incur traveling to see clients. Once again, guidelines must be followed.

Take investment losses strategically

Stocks and other assets you own that lose value can be sold off strategically to offset not only capital gains, but ordinary income — up to $3,000 per year. If you experience loss in excess of this limit, the extra can be carried forward into future years. Unloading underperforming investments could bring you below the threshold where Roth IRA contributions start to phase out.

To be clear, your investment losses will first need to be used to cancel gains. If you take a $4,000 loss and have $5,000 in gains, there’s no offsetting of ordinary income. But if you take an $8,000 loss and have $5,000 in gains, you’re left with a $3,000 income offset.

Pre-tax contributions to a 401(k), 403(b) or 457

Contributing to a pre-tax plan, such as a 401(k), 403(b), 457 or Thrift Savings Plan can help reduce your MAGI. The contribution in 2024 for these plans is $23,000, and those who are aged 50 and up can contribute an additional $7,500.

In the end, if your goal is to be able to contribute to a Roth IRA directly, then it pays to work with a tax professional who can help you maximize strategies for lowering your income.