Income Limits on IRA Deductions

Income Limits on IRA Deductions

You might not be able to write off your full contribution if you earn too much and already participate in a retirement plan at work.
By Kevin McCormally
April 3, 2007

I am trying to reduce the amount of money I have to pay the IRS this year. I thought about opening an IRA. Is there an income limit for contributions to be deductible?

Kevin responds:

That depends on whether you are covered by a retirement plan -- such as a 401(k), 403(b) or pension plan -- at work. If so, there are income limits for deducting traditional IRA contributions.

The right to deduct such contributions is phased out as income rises between $50,000 and $60,000 on a individual return and between $75,000 and $85,000 on a married-filing-jointly return. If your income is less than the bottom figure, you can deduct up to the maximum contribution level of $4,000 ($5,000 if you were 50 or over at the end of 2006) for 2006. And, you have until April 17 to make that 2006 contribution. The deduction will reduce what you owe in tax for 2006.

If you are not covered by a retirement plan at work, there are no income limits on IRA deductibility.

From Kiplinger.com.