Traditional IRA Deductibility Limits

April 11, 2018 — 11:26 AM EDT

In this article, we focus on the benefits of making contributions to your Traditional IRA and the guidelines that determine whether or not you are able to take a tax deduction for those contributions.

Tutorial: Traditional IRA

First let's review some of the contribution rules that apply to participant contributions for Traditional IRAs.

Contribution Limit

For any tax year, you may be able to claim a deduction on individual federal income tax for the money you contribute to your IRA. See below for the limits for 2018.

Spousal IRA Contribution

You may contribute to a spousal IRA on behalf of your non-working spouse. The limits discussed above apply. Remember that if you also contribute to an IRA for yourself, both IRAs must be maintained as separate accounts, as IRAs cannot be held jointly. Of course, in order for you to make a spousal IRA contribution, you and your spouse must file a joint income tax return. Your combined contribution should not be more than the amount of taxable compensation you report on your tax return. (For more, check out Making Spousal IRA Contributions.)

Contribution Deadline

IRA participant contributions must be made by April 15. If April 15 falls on a weekend or other holiday, the deadline is the next business day. (It's Tuesday, April 17, 2018, for the 2017 tax year, for example. In 2019, the deadline will go back to April 15.)  Contributions postmarked on or before April 15 are considered to be made by the deadline.

Making Your Contribution After You File Your Tax Return

Your IRA contribution for the tax year can be made at any time between Jan. 1 of that year and April 15 (or whatever that year's tax deadline is) of the following year, even if you filed your income-tax return before the April 15 (or April 17 in 2018) tax deadline. Should you decide to make your contribution after you file your tax return, be sure to inform your tax professional so that if the contribution was not included on your return an amended return that includes the contribution can be filed.

Age Restriction

You may not make a participant contribution to a Traditional IRA starting from the year you attain age 70½. You may, however, make a contribution for the preceding year. For example, if you reach age 70½ in 2018 you are not allowed to make a contribution for the 2018 tax year; however, you could make a contribution between January 1 and April 17, 2018, for the 2017 tax year.

Indicate Tax Year on Check

If you are one of the many taxpayers who will take advantage of the 3.5-month extension (i.e. the deadline of April 15 [April 17 in 2018]) to make an IRA participant contribution for the preceding year, be sure to indicate the applicable year on your check or any accompanying contribution form. If you do not provide this information, your IRA custodian/trustee will not be able to determine the year for which you want the contribution to be made and will therefore likely report the contribution for the tax year in which they receive the check.

Deducting Your Traditional IRA Contribution

Being able to take a tax deduction for a contribution to your Traditional IRA depends on several factors, namely your modified adjusted gross income, your tax-filing status and your participant status (i.e. whether or not you are considered an "active participant," as the IRS puts it).

Active Participant Defined
Generally, your active-participant status depends on whether or not you participate in an employer-sponsored retirement plan. An employer-sponsored plan includes defined benefit plans, money-purchase or target-benefit plans, profit-sharing plans, 401(k) plans, SEP IRAs and SIMPLE IRAs. The rules vary among the different plans. For example, you are considered an active participant in a profit-sharing plan for the year your employer deposits the contribution to your retirement account, even if the contribution is being made for a different year. (Employers have until their tax-filing deadline plus extensions to make contributions; therefore, a contribution for 2017 may be made in 2018.) For participation in a money purchase pension plan, you are considered an active participant for the year you are entitled to receive the contribution, regardless of when the contribution is made.
Your employer should indicate if you are an active participant, by checking the "Retirement Plan Box" on your Form W-2. If you are unsure of your status, check with your employer or your tax professional.
If you are married and neither you nor your spouse is an active participant, you may take a tax deduction for the full contribution amount. If one of you is an active participant, then your income and tax filing status determines whether or not you are allowed to take a tax deduction for the contribution.

So Can You Deduct Your Contribution?

Use the following chart as a guideline to determine if you are able to get a tax deduction for the amount you contribute. Note that these thresholds change every year. The following limits applied to tax years 2017 and 2018 (if no difference is noted, the limits are the same for both years). "Inactive" means the individual is not an active participant in an employer-sponsored retirement plan, as described above.

Traditional IRA Deductibility Limit For 2017/2018
Tax Filing Status Active Participant Status Modified Adjusted Gross Income Deduction Allowed
Single or Head of Household Individual is inactive  No limit Full deduction
Individual is active $62,000 (2017)/ $63,000 (2018) or less Full deduction

More than $62,000 but less than $72,000 (2017)

More than $63,000 but less than$73,000 (2018)

Partial deduction
$72,000 (2017)/$73,000 (2018) or more No deduction

Married Filing Jointly/

Qualifying Widow(er)

Individual is inactive, Individual's spouse is inactive No limit Full deduction
Individual is active  $99,000 (2017)/$101,000 (2018) or less Full deduction

More than $98,000 but less than $119,000 (2017)

More than $101,000 but less than $121,000 (2018)

Partial deduction
$118,000 (2017)/ $121,000 (2018)  or more No deduction
Individual is inactive, Individual's spouse is active $186,000  (2017)/$189,000 (2018) or less Full deduction

More than $186,000 but less than $196,000 (2017)

More than $189,000 but less than $199,000 (2018)

Partial deduction
$196,000 (2017)/$199,000 (2018) or more No deduction
Married Filing Separately Individual is inactive, Individual's spouse is inactive  No Limit Full deduction
Individual is active *1 $10,000 or less Partial deduction
$10,000 or more No deduction
Individual is inactive, Individual's spouse is active *2 $10,000 or less Partial deduction
$10,000 or more No deduction
*1. If you and your spouse did not live together at any time during the year, then you are considered "single" for tax-filing purposes and should use the guidelines for a single taxpayer.
*2. If you and your spouse did not live together at any time during the year, you are allowed a full deduction.

If you are allowed only partial tax deduction, your tax professional should be able to help you calculate your deductible amount. Taxpayers who are not allowed a deduction or a partial deduction may consider making a non-deductible contribution to the Traditional IRA or a contribution to a Roth IRA.

The Bottom Line

Many factors determine the decisions a taxpayer makes about saving for his/her retirement, and whether a contribution is deductible is only one of these factors. What may be ideal for another person may not be ideal for you. As such, you want to work with a financial planner and/or retirement consultant to ensure that you make the choices that are suitable for your retirement profile. (For related reading, check out Turn Small Savings Into A Big Nest Egg.)