Can I make a deductible IRA Contribution?Submitted by Prosperity Advisory Group on December 15th, 2018
by Dave Martin
Seems like a simple question, but the answer has a few stages of questions you must ask yourself before you can know for sure. The most important first step is that you or your spouse must have earned income in order to qualify. If that is not the case, you can stop right there. Typically, this only excludes retirees and children. Another basic requirement is that you must be younger than 70.5. (This is due to the Required Minimum Distribution rules.)
Here is where it starts to get a little complicated. The deductibility of IRA contributions has what is known as a phaseout for income. This means that whether or not you can deduct your contribution is based on your level of income – and the deduction may be full, partial, or not allowed. It is also dependent on whether you or your spouse are an active participant in an employee-sponsored retirement plan.
Here is how it all breaks down:
MAGI refers to Modified Adjusted Gross Income, which is a measure of your household’s adjusted gross income (Line 37 on your IRS From 1040 – the last line on the first page) combined with any tax-exempt interest income you have (Line 8b on your IRS Form 1040).
As you can hopefully see, being able to deduct your IRA contribution depends on a number of factors. If this explanation didn’t clear it up, why not try our handy flowchart and simply follow the prompts to see if your contribution will entitle you to a tax deduction or not.
*For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors LLC nor any of its representatives may give legal or tax advice.