Mar 8

one comment so far...

  • TaxMan Said on March 8th, 2010 at 11:56 am:

    Excellent question!

    First of all, it sounds like you know that you can contribute to your Traditional IRA regardless if you deduct it or not. You can contribute whichever is higher, your earned income or $4000 ($5000 if 50 or older).

    As fas as deducting your contribution, look at your W-2. If box 13 “Retirement Plan” is not checked on any of your W-2s (or any of your spouse’s W-2s), then you can deduct your contribution regardless how much income you have.

    If your spouse has the “RP” box checked but you don’t, then you can only deduct your contribution if your combined AGI (bottom line of 1040) is $160,000 or less. The deduction fades away from $150,000 to $160,000. What does that mean? If your AGI is less than $150,000 you can deduct the entire amount. If it is $155,000, you can only deduct the first $2000 ($2500 if 50 or older).

    If YOU have the “RP” box checked, the $160,000 becomes $85,000 if you are married and $60,000 if you are single. So, for example, if you are single and have an AGI over $60,000, you can not deduct any of your IRA contribution. If your AGI is $55,000, you can only deduct the first $2000 ($2500 if 50 or older). The $60,000 becomes $85,000 and $55,000 becomes $80,000 if married.

    If you do contribute non-deductable funds into your Traditional IRA, be sure to fill out form 8606. This will allow you to avoid the tax on the non-deductible portion when you eventually pull it out. If you can, it is ALWAYS better to put money into a Roth IRA instead of putting non-deductible money to a Traditional IRA.

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