Deducting your IRA contribution depends on several things. For starters, you will need to ask yourself if you and your spouse have earned any income this year. If not, then a deductible IRA contribution is not for you. If you have earned income this year, keep reading to learn more of your options.
If you have earned income, you will need to determine if you have made a contribution to a Roth IRA. If you have, you are not eligible for a full IRA contribution, but you could be eligible for a partial contribution. For those who have not contributed to a Roth IRA, you can contribute up to $6,000, not to exceed your earned income. If you are 50 or over, you can contribute up to $7,000. To determine if it is deductible, you will need to know your tax filing status.
If you are single, do you participate in an employer-sponsored retirement plan? If yes, you need to determine your MAGI (modified adjusted gross income). If it is above $75,000 annually, you are not eligible for a deduction. If you make between $65,000 and $75,000, you are eligible for a partial deduction. For those with a MAGI less than $65,000, you can deduct the full contribution. Those that are single but do not contribute to an employer-sponsored retirement plan can deduct the full contribution.
If you are married and filing jointly, do you contribute to an employer-sponsored retirement plan? If no, is your spouse an active participant of their employer-sponsored retirement plan? If you both do not contribute to employer-sponsored retirement plans, you can make the full contribution. If your spouse does contribute to an employer-sponsored retirement plan, your MAGI comes into play. If your MAGI is $206,000 or more, you cannot deduct. MAGI between $196,000 and $206,000 is eligible for a partial deduction, and MAGI of $196,000 or less is eligible to deduct the entire contribution.
For those that married and filing jointly but do participate in employer-sponsored retirement plans, you will need to determine your MAGI. The numbers here are a bit different than above. MAGI that exceeds $124,000 is not eligible for a deduction, but if you make between $104,000 and $124,000, a partial deduction is allowed. Those that have MAGI of $104,000 or less can deduct the full contribution.
To learn more, follow this link for a visual aid on deductible IRA contributions.
As you can see, IRA contributions come with a lot of research and analysis. If you are looking to learn more about your options, we are happy to help! Schedule a time to talk with us by calling (321) 225-3154 or email us at hello@threebridgesplanning.com.