Reducing Your Adjusted Gross Income

Updated: May 3



There are several ways to reduce your Adjusted Gross Income (AGI). One method is sometimes referred to as creating a “Secret IRA." This is a creative way to reduce your AGI which involves contributing to a tax-deductible HSA account.


If you are covered under a qualified high deductible health insurance plan, as an individual, you would be able to make contribution of up to $3600 per year into your HSA account. If you are covered under a family plan you could contribute as much as $7200 per year. FYI. These are the figures for 2021.


The contributions to your HSA would reduce your taxable income or AGI. If you are age 55 or older you can make an extra $1000 per year contribution to your HSA. Not only are the contributions tax deductible but the amount in your HSA account grows on a tax-free basis. When you take money out and it is spent on qualified medical expenses those funds are not taxed. Those monies can be taken out for other expenses prior to 65 but they are taxable and subject to a 20% penalty.


After age 65 the penalty goes away, and your HSA account virtually acts just like a regular IRA except funds can still be withdrawn for qualified medical expenses on a tax-free basis. Another advantage of an HSA is that the unused monies in the account stay in the account, earn interest, and carry over, without limit, from year to year. You can spend these funds on current qualified medical expenses or future qualified expenses.