Income Limits for IRA Deductions With No Retirement Plan
Individual retirement accounts (IRA) allow you to build up a tax-deferred retirement fund by setting aside some of your income in your IRA and deducting that contribution from your taxable income, says IRS Publication 590. Although income ceilings can reduce your IRA contribution deduction, most people not covered by a retirement plan at work won't be affected by them. But there are circumstances where income ceilings can reduce your IRA deduction.
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General Limit
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In general, workers not covered by an employer's retirement plan can deduct up to $5,000 in contributions each year to an IRA if under age 50, and $6,000 if over age 50, says IRS.gov. This is termed a full deductible contribution.
Rule for Singles
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If you are not covered by a retirement plan at work and are filing as single, widowed or unmarried head of a household, there is no income ceiling for making a full deductible contribution to your IRA. In other words, you can deduct up to $5,000 ($6,000 if over 50) regardless of your income.
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Marriage Rule
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If you are married and neither you nor your spouse are covered by a retirement plan at work, there are no income limits on you or your spouse making a full deductible IRA contribution, says IRS.gov. This holds true whether you file jointly or separately.
One Covered
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If you or your spouse is covered by a retirement plan at work, you file jointly and your combined income is $166,000 or less, you each can make a full deductible IRA contribution, says IRS.gov. The deduction phases out with joint income between $166,000 and $176,000, with no IRA contribution deduction if income exceeds $176,000.
Separate Filers
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If you and your spouse file separately and either of you is covered by a retirement plan at work, you and your spouse won't be allowed any deduction for IRA contributions if you or your spouse made more than $10,000, says IRS.gov. If income is below $10,000, then you or your spouse might be entitled to a partial deduction. But if you and your spouse lived apart during the tax year, each of you will be treated as a single person for IRA deduction purposes and can take the full deduction.
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References
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