Can you take an IRA deduction for the amount you contribute to a traditional IRA? It depends.
If you are not a participant in a company sponsored retirement plan and you have sufficient earned income, in 2011 you may take an IRA deduction for contributions to a traditional IRA in amounts up to:
- $5,000 for those age 49 and under.
- $6,000 for those age 50 and older.
Limits on the IRA Deduction
- Your IRA deduction may be limited if you contribute to a company sponsored retirement plan.
- Your IRA deduction may be limited depending on the amount and type of income you make.
Details on the limitations to your IRA deduction are listed below.
IRA Deduction Limits When You Also Have A Company Sponsored Retirement Plan
If and only if you participate in a company sponsored retirement plan, your eligibility for the IRA deduction is subject to the income limitations below:
- For 2011 the IRA deduction is phased out between $56,000 and $66,000 of adjusted gross income for single filers.
- For 2011 the deduction is phased out between $90,000 and $110,000 of adjusted gross income for married filing jointly.
A person is considered to be a participant in a company sponsored retirement plan if their account balance received any contributions at all in a given year, even if it was all company contributions.
Income Limitations on the IRA Deduction
You must have earned income to make an IRA contribution. Investment income does not count.
- As long as you are not a participant in a company sponsored retirement plan, you can take the IRA deduction regardless of how much you make.
- If you are a participant in a company sponsored retirement plan, your IRA deduction will be subject to the income limitations listed in the section above.
IRA Deduction For A Spouse
- If you have enough earned income, you may also make an IRA contribution, and take an IRA deduction, for a non-working spouse.
- If you have too much earned income, the contribution for your non-working spouse may not be eligible for the IRA deduction. (For 2011 the IRA deduction is phased out between $169,000 and $179,000 of adjusted gross income for married filing jointly.)
ROTH IRA Contributions
ROTH IRA contributions are not eligible for the IRA deduction.Non Deductible IRA Contributions
If you are not eligible for the IRA deduction, you can still make the contribution. It is called a non-deductible IRA contribution, and the funds inside will grow tax deferred, until such time as you take a withdrawal.
