A:

Whether you can deduct IRA contributions on your tax return depends on the type of IRA you have, your participation in an employer-sponsored retirement plan, and your income.

Roth IRA contributions are never tax deductible; you must pay taxes on Roth IRA funds before you place them in your account. Traditional IRA contributions are often tax deductible, but you must meet several requirements.

If you or your spouse do not participate in a retirement plan at work, your traditional IRA contribution is fully deductible up to your contribution limit, which is based on your income. If you are single, the maximum tax deductible contribution phases out once your modified adjust gross income (MAGI), (we’ll just call it “income” for simplicity’s sake) exceeds $60,000 and you become ineligible for a tax deduction when your income reaches $70,000. If you’re married filing jointly, the maximum tax deductible contribution phases out once your income exceeds $181,000 and you become ineligible for a tax deduction when your income reaches $191,000. In other words, if your income is below these levels ($60,000 for singles and $181,000 for married couples filing jointly), you can make the maximum contribution and it will be fully deductible. The maximum contribution for 2014 is $5,500, but taxpayers who are 50 or older can contribute up to $6,500. If your income is in between these levels ($60,000 to $70,000 for singles and $181,000 and $191,000 for married couples filing jointly), your contribution will be partially deductible, and if it is above these levels ($70,000 for singles and $191,000 for married couples filing jointly), it is not tax deductible at all.

If you are married filing jointly and your spouse participates in an employer-sponsored retirement plan but you do not, the same limits apply. If your income is more than $181,000 but less than $191,000, you’ll be able to take a deduction, but it will be less than the full amount. Once your income reaches $191,000 in this case, you can’t deduct any of your IRA contribution on your tax return.

If you’re married filing separately, the tax deduction limits are drastically lower regardless of whether you or your spouse participate in an employer-sponsored retirement plan. If your income is less than $10,000, you can take a partial deduction; once you hit $10,000, you don’t get any deduction.

If you’re married filing jointly and both you and your spouse participate in an employer-sponsored retirement plan, the maximum tax deductible contribution phases out once your income exceeds $96,000 and you become ineligible for a tax deduction when your income reaches $116,000.

You can still contribute up to the annual maximum for the year to your traditional IRA ($5,500 in 2014, or $6,500 if you’re 50 or older, subject to your contribution limit) even if you can’t deduct all of it. Effectively, you’ll be making part of your contribution with after-tax dollars instead of pre-tax dollars if you max out your contribution despite facing a limited tax deduction based on your income.

RELATED FAQS
  1. Can I deduct my IRA contribution if I don't have an employer plan, I’m single and ...

    You say no, but I'm wondering if it's a typo. Here is what you say: "If you or your spouse do not participate ... Read Answer >>
  2. What is the maximum tax deductible contribution I could make to an IRA if I contributed ...

    I file married jointly. My husband made no contributions.  ... Read Answer >>
  3. If I am retired, can I still deduct an IRA contribution?

    Are IRA contributions deductible against earned income only, or can a retiree with only pension and rental income still make ... Read Answer >>
  4. If I contribute to a 401(k) plan, can I still contribute to an individual retirement ...

    Participating in your employer's 401K plan can reduce or prohibit IRA contributions for your family depending on your spouse's ... Read Answer >>
  5. What's the best kind of IRA for a 20-something?

  6. After separating from prior employers in the first quarter of 2015, are we able to ...

    My wife and I separated from our prior employers in the first quarter of 2015. We were covered under t... Read Answer >>
Related Articles
  1. Taxes

    These IRA Contributions Will Cut Your 2015 Taxes

    No matter how you save for retirement, take advantage of the time between now and April 15, 2016, to add to your nest egg while cutting your tax bill.
  2. Taxes

    How To Use Your IRA As A Last-Minute Tax Deduction

    While some people are stressing over their taxes, there is a big advantage to delaying the process: You can maximize your 2014 contributions to your IRA.
  3. Financial Advisors

    IRAs: Top Things You Need to Know About Them

    By understanding the major rules for both traditional and Roth IRAs, you'll be prepared to enjoy the benefits of these investment opportunities.
  4. Retirement

    IRA Contribution Limits in 2016

    Find out about the 2016 limits for contributions and income thresholds for individual retirement accounts, including traditional IRAs and Roth IRAs.
  5. Retirement

    How Much It Takes to Max Out Your IRA

    IRAs have certain tax advantages that allow your nest egg to grow at a faster rate. But there are annual limits on how much you can contribute.
  6. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  7. Taxes

    3 Little-Known Ways to Reduce Your Income Tax

    Looking to pay less income tax? Here are three lesser known ways to do so.
  8. Retirement

    Want To Know How To Save For Retirement?

    Understanding how to save for retirement does not have to be complicated. Here’s what you need to know about the tax-advantaged accounts you may use.
  9. Retirement

    How (And Why) To Open an IRA Now

    Take these simple steps to set up an Individual Retirement Account that will save you tax money and set you up for the future.
  10. Taxes

    Tax Breaks for People Over 50

    If you’re over 50 you have some tax advantages that your younger counterparts do not. Don’t submit your taxes without first looking at this list.
RELATED TERMS
  1. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  2. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  3. Above The Line Deduction

    Above the line deductions are certain types of deductions that ...
  4. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  5. Married Filing Separately

    A filing status for married couples who choose to record their ...
  6. Roth IRA

    An individual retirement plan that bears many similarities to ...
Trading Center