How IRA Tax Deductions Work


IRA Tax Deduction Eligibility for Those With Employer Plans

There's a whole separate set of eligibility rules for IRA contributors who also contribute to or are covered by a retirement plan at work. These rules similarly focus on the taxpayer's adjusted gross income and filing status.

A person who files a tax return as a single individual or head of household can deduct the full amount of their traditional IRA contributions — up to the maximum limit — if he or she earns no more than $60,000 in adjusted gross income over the year. The same individual can get a partial deduction if he or she makes between $60,001 and $69,999. Individuals covered by an employer-sponsored retirement plan and who make $70,000 or more in a given tax year aren't eligible for a deduction [source: IRS].

For a married couple filing jointly, the income limit for the full deduction jumps to $96,000 (combined) if both spouses are covered by a retirement plan through their jobs. Those who earn from $96,001 to $115,999 over the year can take a partial deduction, while those who make $116,000 or more aren't eligible for a deduction [source: IRS].

As with the deduction for taxpayers not covered by an employer-sponsored retirement plan, it pays for married couples to file a joint return. The income restrictions for married folks filing separately is a mere $10,000, and those who fall below this level can only obtain a partial deduction [source: IRS].

Related Articles

Sources

  • CNN. "What's the difference between Roth and traditional IRAs?" (Nov. 27, 2014) http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index2.htm?iid=EL
  • CNN. "When can I take money out of a traditional IRA?" (Nov. 27, 2014) http://money.cnn.com/retirement/guide/IRA_traditional.moneymag/index4.htm?iid=EL
  • Fidelity. "What Is An IRA?" (Nov. 27, 2014) https://www.fidelity.com/retirement-planning/learn-about-iras/what-is-an-ira
  • Internal Revenue Service. "2014 IRA Contribution and Deduction Limits - Effect of Modified AGI on Deductible Contributions if You are NOT Covered by a Retirement Plan at Work." Oct. 23, 2014 (Nov. 27, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-if-You-are-NOT-Covered-by-a-Retirement-Plan-at-Work
  • Internal Revenue Service. "2014 IRA Contribution and Deduction Limits - Effect of Modified AGI on Deductible Contributions if You Are Covered by a Retirement Plan at Work." Oct. 23, 2014 (Nov. 27, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work
  • Internal Revenue Service. "Instructions for Forms 1099-R and 5498 - Main Contents." (Nov. 28, 2014) http://www.irs.gov/instructions/i1099r/ar02.html#d0e280
  • Internal Revenue Service. "Retirement Topics — 401(k) and Profit-Sharing Plan Contribution Limits
  • Internal Revenue Service. "Retirement Topics — IRA Contribution Limits." Nov. 21, 2014 (Nov. 27, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
  • Marte, Jonelle. "Almost 20 percent of people near retirement age have not saved for it." The Washington Post. Aug. 7, 2014 (Nov. 28, 2014) http://www.washingtonpost.com/blogs/wonkblog/wp/2014/08/07/almost-20-percent-of-people-near-retirement-age-have-no-retirement-savings/

More to Explore