Adjusted Gross Income on Tax Return and Roth Eligibility

For financial advisors, few numbers are as influential as adjusted gross income on tax return when helping clients plan for retirement. AGI doesn’t just affect tax liability—it directly determines whether a client qualifies for a Roth IRA contribution. Since Roth IRAs are one of the most powerful long-term wealth-building tools, understanding the connection between AGI and eligibility is critical for providing strategic guidance.

In this blog, we’ll explore how AGI impacts Roth IRA contributions, the 2025 income limits, and practical planning strategies advisors can use to help clients stay eligible.

Why Adjusted Gross Income Matters for Roth IRAs

Roth IRAs offer tax-free growth and withdrawals in retirement, making them highly attractive for clients aiming to minimize future tax burdens. But not every client qualifies. Eligibility is determined by modified adjusted gross income (MAGI), which starts with AGI.

AGI, shown on a client’s 1040, represents gross income minus certain deductions like retirement contributions, HSA contributions, and student loan interest. Once calculated, AGI is adjusted further (MAGI) by adding back certain deductions, and that figure decides Roth eligibility.

For advisors, the takeaway is simple: AGI is the gateway number. If clients’ AGI is too high, they risk being phased out of Roth contributions.

Roth IRA Income Limits for 2025

To provide context for clients, here are the Roth IRA contribution limits for 2025 (indexed to inflation and subject to IRS updates):

• Single filers: Full contribution allowed if MAGI is below $161,000; phased out between $161,000–$176,000; ineligible above $176,000.
  
  

• Married filing jointly: Full contribution allowed if MAGI is below $240,000; phased out between $240,000–$250,000; ineligible above $250,000.
  
  

• Contribution limits: $7,000 per year (or $8,000 if age 50+).
  
  

For many high-income professionals, including attorneys and business owners, these thresholds can quickly become a roadblock. Advisors must be proactive in addressing AGI levels before year-end.

Planning Strategies to Manage AGI for Roth Eligibility

1. Maximize Pre-Tax Retirement Contributions

Advisors should encourage clients to contribute the maximum to 401(k)s or traditional IRAs. These contributions directly reduce AGI, making them one of the simplest tools to preserve Roth eligibility.

2. Health Savings Account (HSA) Contributions

For clients with high-deductible health plans, HSA contributions are triple tax-advantaged and reduce AGI. Advisors should highlight these as both a tax-saving and healthcare planning tool.

3. Tax-Loss Harvesting

Offsetting capital gains through tax-loss harvesting can help reduce taxable income. While capital gains flow through to AGI, strategic sales at year-end can lower AGI and keep clients within Roth thresholds.

4. Timing of Income

For business owners or independent professionals, shifting income to the following tax year can reduce AGI in the current year. Advisors should analyze invoicing, bonuses, or contract payments for timing flexibility.

5. Roth Alternatives for High Earners

When AGI remains too high despite planning, advisors can guide clients toward alternatives:

• Backdoor Roth IRA: Contribute to a traditional IRA, then convert to Roth.
  
  

• Mega Backdoor Roth (via 401(k)): For clients with access to certain 401(k) plans, after-tax contributions can be rolled into a Roth.
  
  

Case Study: An Advisor’s Role in Protecting Roth Eligibility

Imagine a married couple earning $250,000 annually. Without planning, their MAGI makes them ineligible for Roth contributions.

With advisor guidance, they:

• Contribute $40,000 pre-tax into 401(k)s.
  
  

• Add $6,000 to an HSA.
  
  

• Harvest $5,000 in capital losses.
  
  

These moves reduce their AGI by $51,000, bringing their MAGI below the $240,000 Roth threshold. As a result, they can make a full $14,000 Roth contribution (combined), preserving the long-term tax benefits of tax-free retirement income.

This proactive planning not only saves taxes today but also strengthens client loyalty by showing clear, measurable value.

Turning AGI Monitoring into an Ongoing Service

Financial advisors shouldn’t wait until tax season to discuss Roth eligibility. By building AGI monitoring into quarterly reviews, you can:

• Track client eligibility as income fluctuates.
  
  

• Recommend mid-year adjustments to contributions.
  
  

• Collaborate with CPAs for integrated tax planning.
  
  

• Demonstrate forward-thinking retirement strategy.
  
  

Roth IRAs are often the cornerstone of long-term retirement planning. Helping clients preserve eligibility is one of the most practical, impactful ways to show ongoing advisory value.

Long-Term Impact of Roth Eligibility

Keeping clients eligible for Roth IRAs delivers compounding benefits:

• Tax-free retirement income.
  
  

• Flexibility in retirement withdrawals. No required minimum distributions (RMDs).
  
  

• Estate planning advantages. Tax-free wealth transfer to heirs.
  
  

• Diversification of tax buckets. Balances pre-tax, Roth, and taxable accounts for optimal retirement withdrawal strategies.
  
  

For financial advisors, AGI planning isn’t just about saving taxes this year—it’s about preserving access to one of the most powerful retirement vehicles available.

Make AGI Work for Your Clients

The connection between adjusted gross income on tax return and Roth eligibility is a perfect example of how financial advisors can add value beyond investment management. By helping clients understand and manage AGI, you can unlock Roth contributions, improve long-term retirement security, and position yourself as a trusted strategic partner.

Let’s talk about how Jalada can help you provide smarter AGI planning for your clients. Schedule a consultation today.

Disclaimer: This material is provided for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA for guidance on the specific tax situation.