Can You Take an IRA Deduction?

 Do you have an IRA? If so, you should know that, in some cases, you may be able to take a nice tax deduction for some of the money you contribute to it. With that said, however, like all things with the IRS, there are some rules and restrictions in place.   

The No Roth Rule  

First of all, understand that only traditional IRA contributions are eligible for deductions. If you have a Roth IRA, the deductions won’t apply to you. That’s because any withdrawals you make from your Roth are tax-free after retirement. You can’t have both that benefit and the benefit of a tax break at the time of contribution. The IRS just isn’t that nice, unfortunately.  

Limitations  

The IRS is also known for letting taxpayers benefit . . . but not too much from its allowed deductions, and the IRA deduction is no exception. If you’re 49 years of age or younger, you can enjoy a deduction for as much as $6000 in contributions. Add an extra thousand once you reach 50 or more.  

Also remember that, regardless of your age, you cannot contribute more to any IRA than you earn each year and still qualify for a deduction.  

Company Sponsored Plans  

What about if you also contribute to a company-sponsored plan? Unfortunately, if you meet these qualifications, you won’t be eligible for an IRA deduction:  

●       You’re single or filing as head of household and have more than $75,000 in modified adjusted gross income.

●       You’re married and filing jointly or are a qualified widower and have more than $124,000 in modified adjusted gross income.

Receiving Your Deduction

If, despite the many rules and limitations, you still qualify for an IRA deduction, you’ll be glad to know that it’s fairly easy to claim. You don’t even have to itemize deductions, unless you want to.

Just enter the deduction on Form 1040’s Schedule 1 Form, and you should be good to go!

Of course, with so many stipulations in place, it can be difficult to know if you qualify for this deduction or not. In some cases, you may qualify for a lesser deduction. To ensure you do qualify and, if so, for how much, and then to guarantee you file everything correctly, remember that it’s always best to seek the help of a qualified tax professional.