How to Pay for a Traditional IRA to Reduce the AGI

Traditional IRA contributions are fully deductible from your taxes.

To encourage retirement savings, the Internal Revenue Service offers a number of tax advantages for the traditional Individual Retirement Account (IRA). If you qualify to use an IRA, your contributions into the account are fully tax deductible. You may contribute up to $5,000 a year into an IRA if your are younger than 50 and up to $6,000 a year if you are 50 or older.

Instructions

1. Review your eligibility for a traditional IRA. If you do not have a retirement plan at work, you automatically qualify for an IRA. If you are enrolled in a retirement plan at work, you may only invest in a traditional IRA if your income is below $66,000 for single taxpayers and $110,000 for married taxpayers.

2. Contact a brokerage firm and open a traditional IRA. You must let your investment company know you want your investments to go into an IRA.

3. Invest in your IRA throughout the year. Keep track of your total contributions for your tax return.

4. List your traditional IRA contributions on your 1040. There will be a line on your tax return that asks you to list this deduction.

5. Subtract your IRA contributions from your gross income to account for the IRA deduction.

Tips & Warnings

• Roth IRA contributions are not tax deductible. If you are also investing in a Roth IRA, do not deduct these contributions from your taxes.

References

• IRS.gov: IRA Contribution Limits
• Internal Revenue Service: Publication 590 Individual Retirement Accounts