As tax season rolls on, millions of Americans wonder if
there's anything they can do to cut their taxes. Contributing to
a traditional IRA is one way that many people can produce tax
savings, as an IRA tax deduction applies for traditional IRAs.
But not everyone is eligible to take an IRA tax deduction. Let's
take a closer look at the rules to see how they apply to
taxpayers in various situations.
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Roth IRAs: No IRA tax deduction
First and foremost, it's important to realize that Roth IRAs
aren't eligible for an IRA tax deduction. As a trade-off, those
who open Roth IRAs get tax-
treatment of their income when they make withdrawals in
retirement, unlike traditional IRAs, for which distributions are
generally taxable. But if you really just want the deduction, a
traditional IRA is your only option.
Income limits for the IRA tax deduction
Even if you use a traditional IRA, you might not be able to take
an IRA tax deduction. Your eligibility depends on your marital
status and whether you or your spouse has a retirement plan
available at work.
If you're single and don't have a retirement plan at work,
your IRA contribution is entirely deductible. Similarly, married
couples where neither spouse has access to a retirement plan get
full deductions as well. The idea here is that if your IRA is
your only retirement plan, the government wants to encourage you
to use it fully.
If you or your spouse has a retirement plan at work, then
income limits can reduce or eliminate your IRA tax deduction. For
the 2013 tax year, if you're single and have retirement-plan
access, then deductions begin to phase out between income levels
of $59,000 and $69,000, with no deduction allowed at all above
$69,000. For married taxpayers, the phase-out range is $95,000 to
Finally, if you're
covered but your spouse
, then a different income limit applies to
IRA. For 2013, the phase-out range for joint filers is from
$178,000 to $188,000.
The net effect of the phase-out ranges is to reduce your
maximum deductible contribution proportionally. So if you're
single and earn $64,000 or married and earn $105,000, you're
halfway through the range and can only deduct half of the maximum
$5,500 contribution amount for 2013 or $2,750 for those under age
50. Those 50 or older get an extra $1,000 catch-up contribution,
and that boosts the maximum deductible amount in this example to
You can still contribute to an IRA
Despite these income limits, there's never any restriction
against contributing the maximum available amount to a
traditional IRA. The only question is the extent to which you can
get an IRA tax deduction. Nondeductible contributions obviously
aren't as valuable for taxpayers, but they can still be a smart
way to save for retirement and reap at least some of the benefits
of IRAs, including tax-deferred growth.
Use your IRAs as well as you can
IRAs are a great way to save on your taxes, and you have until
April 15 to make a contribution to a traditional IRA in order to
get an IRA tax deduction on your 2013 tax return. By knowing the
rules that apply to deductibility, you won't get hit with nasty
surprises when you file.
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