How to Determine Tax Deductions on IRA Contributions

The deduction for IRA contributions is taken on the front page of Form 1040 or Form 1040A. The IRA deductions can be limited by a number of factors including your filing status, amount of gross income and whether you or your spouse is covered by an employer retirement plan. The maximum IRA contribution is $4,000 unless you are age 50 or older, which is when the maximum increases to $5,000. Nondeductible IRA contributions are reported on Form 8606.

Instructions

1. Deduct the maximum IRA contribution allowable for your age bracket if you or your spouse do not have an employer-sponsored retirement plan. However, you cannot deduct any contributions to your traditional IRA if you were 70 1/2 or older at the end of the year.

2. Review the adjusted gross income limits if you or your spouse is covered by an employer retirement plan. You may still qualify for the full deduction if your AGI is below the maximum or you may get a partial deduction if your AGI is somewhat above. Prepare IRS Form 8606 for nondeductible amounts.

3. Decide if it would be more advantageous to contribute to a Roth IRA rather than a traditional IRA. The contributions to the Roth would not be deductible, but if you are in a low tax bracket, it would not be a large financial sacrifice to forgo the deduction.

4. Determine the year that you want IRA contributions to be deductible. IRA contributions early in the year could be deducted in the previous year if that was more advantageous.