Deductible IRA Contributions

Everyone is eligible to establish and maintain an IRA, but whether your contributions into the IRA this year will be deductible depends upon:

• your income level (or, if married, you and your spouse's income level) and
• whether you (and/or your spouse) are covered by a pension plan at work.

Neither spouse covered. If neither you nor your spouse is covered under another retirement plan, you may both take full advantage of the tax deduction for the amount contributed, regardless of your income level.

Contribution deduction limits when covered by another plan If the individual making the contribution is covered under another retirement plan, the amount of the contribution eligible for deduction is determined by the filing status and the modified adjusted gross income (MAGI) of the couple. Note that the test here is MAGI - not earned income. That means that interest, dividends, capital gains, etc. are included in the total; what's more, AGI for this purpose is computed without considering the exclusion available for income from savings bonds used to pay educational expense, the exclusion allowed for foreign earned income, the deduction for IRA contributions, the exclusion for amounts furnished under an adoption assistance program, the deduction for interest on any qualified education loan, and the deduction for qualified tuition.

Warning If you are married and file a separate return, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is $0 - $10,000. Unless you can qualify to be treated as unmarried, you can not claim an IRA deduction if your MAGI is $10,000 or more.

The following table shows the limits that apply for 2014.

AGI limits when only one spouse is covered. If the individual making the contribution is not covered by another retirement plan at work, but his or her spouse is covered by such a plan, the non-covered individual may make deductible contributions to an IRA. The AGI phaseout range in 2014 for such contributions is $181,000 to $191,000, as shown on the following chart.

2014 Maximum Contribution if One Spouse Is Covered by a Retirement Plan

Claiming the deduction. If your contribution to an IRA is deductible, you don't need to file any special form to claim it, nor do you need to itemize deductions on Schedule A. Simply write the amount of your contribution (and your spouse's contribution, if married filing jointly) on Line 32 of Form 1040, or Line 17 of Form 1040A.

© 2024 Wolters Kluwer. All Rights Reserved.