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.

  1. Can I contribute to a Roth IRA and still participate in my employer-sponsored retirement ...

    Yes, you can contribute to both a Roth IRA and an employer-sponsored retirement plan such as a 401(k), SEP or SIMPLE IRA. ... Read Full Answer >>
  2. Can I take money out of my Individual Retirement Account (IRA) while working?

    Yes, you can take money out of your IRA plan if you’re still working, but you may not want to for three main reasons. The ... Read Full Answer >>
  3. What's the difference between an individual retirement account (IRA) and an annuity?

    Individual Retirement Accounts (IRAs) and annuities both provide the opportunity to grow money on a tax-deferred basis, but ... Read Full Answer >>
  4. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  5. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  6. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
Related Articles
  1. Taxes

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  2. Taxes

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
  3. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  4. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  5. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  6. Taxes

    Revisiting the Internet Sales Tax Bill: 2013 Vs. 2015

    Learn about the Marketplace Fairness Act of 2015 being reviewed by congress and the differences between it and the 2013 Marketplace Fairness Act.
  7. Taxes

    5 States Without Sales Tax

    Learn about the five states that do not charge sales taxes and about other taxes the states levy instead in order to generate revenue.
  8. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  9. Retirement

    Is Caterpillar Stock Suitable for Your IRA or Roth IRA?

    Learn about Caterpillar's suitability for a retirement portfolio. Does CAT have long-term viability? Find out if CAT is better for a traditional IRA or Roth IRA.
  10. Financial Advisors

    How to Help Plan Sponsors Meet Fiduciary Duties

    Advising 401(k) plan sponsors is a great business model for financial advisors. Here's how advisors can help plan sponsors meet fiduciary obligations.

    A retirement plan that can be used by most small businesses with ...
  2. Earnings Stripping

    Earnings Stripping is a commonly-used tactic by multinationals ...
  3. Skinny Down Distribution

    Skinny down distribution is corporate practice of slimming down ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. Sales Tax

    A consumption tax imposed by the government on the sale of goods ...
  6. Section 1231 Property

    A tax term relating to depreciable business property that has ...

You May Also Like

Trading Center