Retirement tax terms, plainly defined.

The 2010 law that created the health insurance marketplace and premium tax credits (subsidies) for individuals who earn between 100% and 400% of the Federal Poverty Level. Pre-65 retirees who buy marketplace coverage rely on these subsidies, which can be worth $8,000–$12,000 per year.

Your gross income minus "above-the-line" deductions (like IRA contributions, student loan interest, and self-employment taxes). AGI is the starting point for MAGI. It appears at the bottom of Schedule 1 on your federal tax return.

An income threshold where crossing it by even $1 triggers a sudden, large cost increase. Unlike a marginal rate that phases in gradually, a cliff is a step function. The ACA subsidy cliff and IRMAA tier thresholds are examples.

Income guidelines published annually by HHS. Used to determine eligibility for ACA subsidies, Medicaid, and other federal programs. The ACA subsidy cliff sits at 400% of the FPL for your household size — $62,600 for a single filer in 2026.

A Medicare surcharge added to the standard Part B and Part D premiums when your MAGI from two years prior exceeds a threshold. There are six IRMAA tiers; the top tier costs a couple up to $11,000 more per year than the base premium. IRMAA uses its own MAGI definition, which differs from ACA MAGI.

Profits from selling assets held longer than one year. Taxed at preferential rates (0%, 15%, or 20%) based on taxable income rather than MAGI. The 0% → 15% rate jump is a cliff many retirees cross inadvertently when doing Roth conversions. A separate NIIT may also apply.

AGI with certain deductions added back. The exact add-backs depend on which program is computing MAGI — ACA MAGI and IRMAA MAGI use different formulas. This distinction is load-bearing: using the wrong definition produces the wrong cliff threshold. CliffEdge computes both separately.

A tax filing status for married couples. MFJ has wider tax brackets and higher IRMAA thresholds than Single. When a spouse dies, the surviving spouse typically loses MFJ status, triggering the Widow Penalty.

A 3.8% surtax on investment income (dividends, capital gains, rental income, etc.) for filers above $200,000 MAGI (single) or $250,000 MAGI (MFJ). Unlike most thresholds, NIIT thresholds are not inflation-adjusted, so more retirees are caught each year.

A 2025 tax law that created a $6,000 additional deduction for taxpayers age 65 and older. The deduction phases out between $75,000 and $175,000 MAGI, raising the effective marginal rate within that band.

Mandatory annual withdrawals from traditional IRAs and 401(k)s starting at age 73 (under SECURE 2.0). RMDs count as ordinary income and raise MAGI, which can push retirees into higher IRMAA tiers or across other cliffs even without any discretionary withdrawals.

Moving funds from a traditional (pre-tax) IRA or 401(k) to a Roth IRA. The converted amount is taxed as ordinary income in the year of conversion. Strategic conversions in low-income years can reduce future RMDs — but conversions that push MAGI over a cliff can cost far more than they save.

Monthly retirement benefit paid by the federal government. Up to 85% of Social Security becomes taxable once MAGI exceeds a threshold ($34,000 for single filers; $44,000 for MFJ). This rapid phase-in creates the Tax Torpedo.

The effective marginal rate spike that occurs when additional income causes more Social Security to become taxable. The income is taxed directly, and it also causes SS to be taxed — creating an effective rate as high as 40.7% within a specific MAGI band, even for retirees in the 22% bracket.

The tax increase a surviving spouse faces when transitioning from MFJ to Single filing status. Single brackets are narrower, IRMAA thresholds are roughly halved, and the standard deduction is lower — all with no change in actual income. The annual tax cost typically ranges from $5,000 to $15,000+.