Can I contribute to a tax deductible IRA? In this episode of Ask The Hammer, Jeffrey Levine answers the question: Can I contribute to a tax deductible IRA? The answer, according to Jeffrey is “depends.”
Whether you can contribute to a tax-deductible Individual Retirement Account (IRA) depends on several factors, including your income, tax filing status, and participation in employer-sponsored retirement plans. Here’s a general overview:
- Income Limits: If you are covered by a retirement plan at work, such as a 401(k), 403(b), or similar employer-sponsored plan, your ability to deduct contributions to a traditional IRA may be limited based on your Modified Adjusted Gross Income (MAGI). For 2022, if you are single or head of household and your MAGI is $68,000 or less ($69,000 or less for 2023), you can take the full deduction. The deduction begins to phase out for MAGI between $68,000 and $78,000 ($69,000 and $79,000 for 2023). If your MAGI exceeds $78,000 ($79,000 for 2023), you cannot deduct contributions to a traditional IRA if you are covered by a retirement plan at work.For married couples filing jointly, the phase-out range is $109,000 to $129,000 for 2022 ($111,000 to $131,000 for 2023) if the spouse making the IRA contribution is covered by a retirement plan at work. If the contributing spouse is not covered by a retirement plan but their spouse is, the phase-out range is $204,000 to $214,000 for 2022 ($208,000 to $218,000 for 2023).
- No Employer Plan: If you are not covered by a retirement plan at work, there are no income limits for deducting contributions to a traditional IRA.
- Roth IRA: If you’re ineligible for a tax-deductible traditional IRA contribution, you may still be able to contribute to a Roth IRA. Roth IRA contributions are made with after-tax dollars and are not tax-deductible, but qualified withdrawals in retirement are tax-free.
- Spousal IRA: Even if you do not have earned income, you may still be able to contribute to an IRA if your spouse has sufficient earned income to cover the contribution. This is known as a spousal IRA contribution.
- Age Limits: Unlike Roth IRAs, there is no age limit for making contributions to a traditional IRA as long as you have earned income.
Before making contributions to an IRA, it’s essential to review IRS rules and consult with a tax advisor or financial planner to ensure that you’re eligible for tax deductions and to understand the impact on your overall financial plan.
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