How to Lower Your AGI With an IRA
Adjusted gross income (AGI) is a tax term used to describe your taxable income for the year after adjustments. One such adjustment is a deduction for your contribution to a traditional individual retirement account (IRA). You may only lower your AGI, however, if you are not covered by a retirement plan at work or, if you are, if your modified adjusted gross income falls below the annual limit, which changes each year and varies depending on your filing status.
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Instructions
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Compare your modified adjusted gross income to the annual limit for your filing status, found in IRS Publication 590, if you or your spouse is covered by a retirement plan through work. If your modified adjusted gross income exceeds the limits, you cannot lower your AGI with an IRA contribution.
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Contribute to a traditional IRA before the tax filing deadline, typically April 15. For example, if you wanted to make a contribution to lower your AGI in 2013, you would have to make the contribution between January 1, 2013 and April 15, 2014.
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Report the amount of your traditional IRA contribution on your income tax return with IRS Form 1040 or Form 1040A. On Form 1040, claim the deduction on line 32. On Form 1040A, claim the deduction on line 17. Subtract this amount, along with your other adjustments to income, from your total taxable income, to find your AGI for the year. For example, if your total taxable income equals $45,000 and you contributed $3,900 to a traditional IRA, subtract $3,900 from $45,000 to find your AGI is lowered to $41,100.
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Tips & Warnings
The IRS limits how much you can contribute each year to your traditional IRA. At the time of publication the maximum contribution equals $5,000.
A Roth IRA contribution does not lower your AGI.
