Monday, February 11, 2008

Deductible IRA Contributions

Its tax time once again and a topic that always seems to come up when people are preparing their returns is can they make a tax deductible contribution into an Individual Retirement Account (IRA). You would think that it would be easy to determine whether or not such a contribution could be made. However, we know all to well that the US Tax Code is hardly ever easy to understand and/or interpret. That being said, I have listed below a summary of the rules or guidelines you should follow to determine whether or not you can make a deductible IRA contribution:

  • If neither spouse is an active participant in a retirement plan, $4,000 per IRA for 2007 and $5,000 per IRA for 2008, if earned income exceeds the IRA contribution amount.

  • If either spouse is an active participant in a retirement plan in 2007, the AIG phase-out limit for deductible traditional IRA contributions is $52,000 to $62,000 for single filers and between $83,000 and $103,000 for joint filers.

  • In 2008, the AIG phase-out for single filers is between $53,000 and $63,000 and for joint filers between $85,000 and $105,000.

  • Contributions are phased out for a non-active participant spouse when the joint AGI is between $159,000 and $169,000.

Hopefully the summary above makes the rules a little more clear. However, it is best to consult a qualified tax advisor before making any tax related decisions.

NOTE: I have provided this information for educational purposes only. I am not a practicing tax advisor. This information should not be relied upon without further investigation or consultation with a qualified licensed tax professional.

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