How IRA deduction rules apply
Counting your IRA contributions as tax deductions depends on the type of IRA you invest in, the retirement plan your employer offers, and your income.
Financial management
Can an IRA deduction be a tax perk for you?
The beauty of a traditional IRA is that contributions could immediately help reduce your taxable income.
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Roth IRA
Contributions are never tax-deductible.
SELF-EMPLOYED OR OWN A SMALL BUSINESS?
You may be able to save even more with a SEP-IRA or SIMPLE IRA.
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Modified adjusted gross income (MAGI)
An amount used to determine a taxpayer's IRA eligibility. Generally, it's the taxpayer's adjusted gross income calculated without certain deductions and exclusions.
Traditional IRA
Deductions vary according to your modified adjusted gross income (MAGI) and whether or not you're covered by a retirement plan at work.
If you (and your spouse, if applicable) aren't covered by an employer retirement plan, your traditional IRA contributions are fully tax-deductible.
If you (or your spouse, if applicable) are covered by an employer retirement plan, you can still make contributions to a traditional IRA, but depending on your income, they may qualify as partially tax-deductible or totally non-tax-deductible IRA contributions.
Details are provided at irs.gov:
If you are covered by a retirement plan at work
If you aren't covered by a retirement plan at work
If you are covered by a retirement plan at work
If you aren't covered by a retirement plan at work
The limits on the amount you can deduct don't affect the annual amount you can contribute. However, you can never claim a tax deduction for more than what you contributed to your IRA that year.
Get details on contribution limits & deadlines
Keep in mind that whether or not your contribution is tax-deductible shouldn't be the only consideration in choosing an IRA. Before deciding, you should also weigh in on factors like required minimum distributions (RMDs) and taxes on withdrawals.
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Required minimum distributions (RMDs)
Most owners of traditional IRAs and employer-sponsored retirement plan accounts (like 401(k)s and 403(b)s) must withdraw part of their tax-deferred savings each year, starting at age 72 (age 70½ if you attained age 70½ before 2020). If you withdraw less than the RMD amount, you may owe a 50% penalty tax on the difference. Roth IRAs have no RMDs during the owner's lifetime.
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