Tax Deductible IRA Contribution Limits
The traditional IRA is a retirement savings plan where contributions may be tax deductible and the values can grow tax deferred until withdrawal at retirement. From 1981 until 2001, the contribution limit for an IRA was $2,000. The contribution limit has since increased in 2002, 2005 and 2008. Contributions may or may not be fully tax deductible, based on an individual's income and other retirement plans.
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Contribution Limits
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For 2010, the IRA contribution limit for any wage earner is $5,000 or the individual's taxable wages, whichever is less. A wage earner over the age of 50 can contribute an additional $1,000 into an IRA, bringing the total possible contribution to $6,000. Whether the contributions are tax deductible depends on other factors. A non-working spouse can contribute to an IRA up to the limitations if the working spouse's income is equal to or greater than the combined IRA contributions.
No Retirement Plan
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If a taxpayer and his spouse are not covered under an employer-provided retirement plan, the full $5,000 or $6,000 contribution limit is tax deductible. If the taxpayer does not have an employer retirement plan but the spouse is covered under an employer's plan, IRA contributions are fully deductible up to the contribution limit if the taxpayer's adjusted gross income is less than $167,000. For income levels from $167,000 to $177,000, the IRA deduction amount is limited to a proportional partial amount. Married taxpayers filing jointly with a spouse covered under an employer retirement plan cannot make a tax-deductible IRA contribution if that taxpayer's adjusted income is greater than $177,000.
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With Retirement Plan
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If a single taxpayer is covered under an employer's retirement plan, she can take the full IRA contribution limit deduction if her gross income is less than $56,000. If the single taxpayer's income is between $56,000 and $66,000 she gets a partial deduction, and no deduction if her income is greater than $66,000. If the taxpayer is married, filing jointly, the income limit for the full IRA deduction is $89,000, the partial deduction phases out from $89,000 to $109,000, and no deduction is allowed if the taxpayer's adjusted income is greater than $109,000.
Considerations
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For single taxpayers who do not have an employer retirement plan, there is no income limitation on taking the full tax-deductible IRA contribution. If a taxpayer is covered by an employer plan, follow the income limitations to determine the level of IRA tax deduction. Married taxpayers must use their individual incomes and retirement plan status to determine the amount of tax deductible IRA contribution. The allowable contributions for each spouse are then added together for the total IRA tax deduction for the couple.
Contribution vs. Deduction
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If a taxpayer makes the full $5,000 or $6,000 IRA contribution and then calculates that the contribution is not fully deductible, the taxpayer can withdraw the excess contribution from the IRA or leave it in the IRA account as a non-deductible contribution, however the taxpayer chooses.
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References
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