Which term describes the income used to set limits on retirement contributions and certain deductions?

The term that describes the income used to set limits on retirement contributions and certain deductions is Adjusted Gross Income (AGI). AGI is an individual's total gross income with deductions for specific expenses, such as student loan interest, IRA contributions, and educator expenses, taken into account.

The reason AGI is significant lies in its role in determining eligibility for various tax benefits and limitations. For instance, many tax credits and deductions phase out at higher AGI levels. This makes AGI a critical figure for taxpayers as it affects not only their taxable income but also their eligibility for making further contributions to retirement accounts like Roth IRAs, which have contribution limits based on AGI.

While gross income and taxable income are related, they aren't specifically used to set limits on retirement contributions and deductions in the same manner that AGI is. Net income relates more to a business's income after all expenses have been deducted, rather than the context of personal tax benefits. Therefore, choosing AGI reflects an understanding of how income is analyzed in relation to tax obligations and opportunities for retirement planning.