Bob Brinker's Marketimer

  Tuesday November 21, 2017

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WHO MAY MAKE DEDUCTIBLE IRA CONTRIBUTIONS?
Learn even more about this topic with the Encyclopedia of Personal Finance™

Can you deduct your contributions to an individual retirement account (IRA) from your income for tax purposes? The answer depends on your income level and filing status, among other factors.

Your contributions are fully deductible if you are single and not covered by another employer plan. If you are married and neither you nor your spouse is covered by another employer plan, contributions are also fully deductible.

Contributions to an IRA made after 1986 are not fully deductible if the individual participates in an employer-sponsored retirement plan. Individuals who are covered by such a plan must use their adjusted gross income (AGI) from their tax forms to determine how much may be deducted.

If you are married, filing jointly, and both you and your spouse are covered by an employer plan, your deductibility also begins to decline at a certain phase-out point. For 2005 the phase out starts at $50,000 for single taxpayers and $70,000 for married taxpayers filing jointly.

The maximum allowable deductible contribution drops by $10 for every $50 of income that is above a certain limit, called a phase-out point. Once your AGI reaches $10,000 over the phase-out point, your deduction drops to zero.

Knowing your eligibility for taking the IRA deduction can help you decide whether to invest in the traditional IRA, or whether some alternative, such as the Roth IRA, is the best plan for you.

On the next screen, we discuss the limits that apply to married couples when only one spouse has an employer sponsored retirement plan.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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