I was investigating Income Based Repayment the other day, and eligibility depends on AGI. I've been making Roth contributions in the past, but hadn't considered that AGI might gatekeep government and non-profit benefits. Beyond reducing income tax, what benefits accrue lowering your AGI? Conversely, are there costs I'm missing?

  • I'm not sure if I'm understanding your question. Do you want to know the advantages/disadvantages of lowering your taxable income by shifting things like Roth contributions to deductible ones? – duffbeer703 Oct 14 '11 at 17:07
  • Or by simply increasing 401k contributions, charitable contributions, whatever. – jldugger Oct 14 '11 at 20:58
  • @jldugger - Curious if you have an update to this question, I know you are a regular here, and I just stumbled on this old question. What, if anything, did you decide to do? – JTP - Apologise to Monica Dec 29 '13 at 14:17

I look at it this way. You are trying to decide between a Roth vs traditional IRA, or 401(k). Using tax software you can see a number of scenarios pretty easily. Look at the difference in your tax bill if you flip the last $1000 from a pretax to post tax deposit. This will show you pretty clearly the effect of whatever phaseout of benefits you'd have based on this change of AGI. By tinkering a bit, you'll see exactly how and where that phaseout impacts your return.

  • Part of my thinking here is that there are benefits outside of tax software that I might not know about. For example, Income Based Repayment for student loans uses AGI but isn't something I'd expect "tax software" to calculate. I'm wondering if there's other stuff keyed to AGI. – jldugger Oct 16 '11 at 15:07
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    I understand. Using the software will filter the tax related ones for you, the one you reference will need to be done manually. Don't confuse reduced minimum payments for real savings. If it simply extends your loan payback time, it's not really of value to you. – JTP - Apologise to Monica Oct 16 '11 at 15:21
  • See, that's the trick, after 10 years of public service, the loan is forgiven. – jldugger Oct 16 '11 at 19:51

You're thinking about it the wrong way.

Regressive benefits are subsidies. Subsidies can be taken away. Subsidies increase your dependence on the subsidizer.

Focus on increasing your income.

  • Can't you do both? Increase your income and organize it to maximize subsidies? – jldugger Oct 16 '11 at 15:07

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