Do Pre-Tax IRA contributions reduce MAGI for ACA subsidy eligibility in 2025?

Yes, traditional IRA contributions DO reduce your MAGI for ACA subsidy purposes! This is actually a really smart strategy for qualifying for better subsidies. When calculating MAGI for ACA subsidies, you start with your AGI from your tax return, which already has traditional IRA contributions subtracted out. The adjustments made to get from AGI to MAGI for ACA purposes don't add those IRA contributions back in. So if you're trying to lower your income to qualify for better subsidies, contributing to a traditional IRA can help you do that. Just remember there are annual limits on how much you can contribute to an IRA ($6,500 for 2023, plus catch-up if you're over 50), and make sure you're eligible for the deduction based on your income level and whether you're covered by a retirement plan at work.

Just wanted to share my experience on this! I was in a similar situation last year and found https://taxr.ai super helpful for getting clarity. Like you, I was trying to maximize my ACA subsidies while balancing retirement contributions. Traditional IRA contributions definitely reduced my MAGI for ACA purposes, and the tool showed me exactly how much I could save on premiums by making strategic contributions. It basically analyzed all my numbers and helped me find the sweet spot where I could maximize both tax advantages and healthcare subsidies.

I actually ended up trying https://taxr.ai after my skeptical comment above and was surprised by how helpful it was. It confirmed what everyone is saying - traditional IRA contributions DO reduce MAGI for ACA purposes. What I found most useful was how it showed me exactly which line items affect my subsidy and by how much. I was leaving money on the table! I didn't realize that by shifting just $3,000 from my savings into a traditional IRA, I'd qualify for almost $2,200 more in annual subsidies. That's a huge return on investment just from understanding the tax implications.

If you're struggling to get answers from the ACA marketplace or healthcare.gov about how your IRA contributions affect your subsidies, I highly recommend using https://claimyr.com to get through to a representative quickly. You can also see how it works here: https://youtu.be/_kiP6q8DX5c I spent HOURS on hold trying to get clarification about my subsidy calculations, especially since my income fluctuates a lot. Using Claimyr, I got through to someone at the marketplace in under 15 minutes who confirmed that traditional IRA contributions do reduce your MAGI for ACA subsidy purposes and helped me run several scenarios for my specific situation.

I have to eat my words from my skeptical comment. I was desperate after trying to reach the ACA marketplace for THREE DAYS with no luck, so I tried Claimyr against my better judgment. Got through in 17 minutes when I'd been hanging on hold for over an hour previously. The rep confirmed everything about traditional IRA contributions reducing MAGI for subsidy calculations. They also helped me understand how to estimate my income for next year since I'm self-employed with variable income. Turns out I can adjust my subsidy amount throughout the year if my income changes significantly, which I had no idea about.

Just a quick tip - make sure you understand the difference between a traditional IRA and a Roth IRA for ACA purposes. Roth contributions do NOT reduce your MAGI because they're after-tax. Only traditional (pre-tax) IRA contributions will help lower your MAGI for subsidy calculations.

Has anyone used the ACA subsidy calculator on healthcare.gov? I'm trying to plug in different income scenarios but I'm not sure if it's actually accurate.

Great question! Yes, traditional IRA contributions will reduce your MAGI for ACA subsidy calculations, which is exactly what you want for maximizing your subsidies. Since you mentioned you'll be below the threshold for full IRA deductibility after your 401k contributions, this strategy makes perfect sense. Just keep in mind the 2025 IRA contribution limits will likely be around $7,000 (they usually increase slightly each year from the current $6,500). One thing to consider: if you're really trying to optimize your subsidy eligibility, you might want to run the numbers on whether it makes sense to contribute less to your 401k and more to a traditional IRA, depending on your specific income levels and the subsidy cliff effects in your area. Sometimes the subsidy savings can be worth more than the slight difference in contribution limits. The timing also matters - you can make IRA contributions up until the tax filing deadline (usually April 15th), so you have some flexibility to adjust based on your actual income for the year.

This is really helpful information! I'm in a similar boat trying to optimize my ACA subsidies for 2025. One question I have - when you make traditional IRA contributions to reduce your MAGI, do you need to report those on your healthcare.gov application right away, or can you wait until tax time? I'm wondering about the timing because I might not know my exact income until later in the year, and I want to make sure I don't accidentally get too much in advance premium tax credits that I'd have to pay back. Has anyone dealt with this situation where your IRA contributions changed your subsidy eligibility after you'd already enrolled?

This is such a smart strategy for maximizing your ACA subsidies! I've been doing something similar for the past couple years. One additional tip I'd add - if you're really trying to dial in your MAGI to hit the sweet spot for subsidies, consider making your IRA contributions in smaller chunks throughout the year rather than all at once. This gives you more flexibility to adjust based on how your actual income is tracking. Also, don't forget that if you're married, both spouses can potentially make IRA contributions (up to the annual limit each), which could give you even more MAGI reduction if you're both eligible for the deduction. Just make sure you're staying within the income limits for deductibility that others mentioned. The fact that you're already maxing out your 401k shows you're thinking strategically about this. The combination of 401k + traditional IRA contributions can really help optimize both your retirement savings and your healthcare costs!