Traditional Individual Retirement Account (IRA) Contributions

Tax Strategy
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Retirement
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Updated
2/18/2023

How It Works

This strategy is a retirement plan deduction that an individual taxpayer takes on their personal tax return (Form 1040) for contributions they made to a Traditional IRA. Contributions are invested within the traditional IRA and earnings accumulate tax-free until retirement. The contributions and earnings are taxable when the taxpayer takes an IRA distribution during retirement

Eligibility

Confirm the following before using this strategy:

  • Do you or your spouse have “earned” income? Earned income is income earned from employment or through a business. If you have no earned income, your IRA contributions aren’t deductible.
  • Are you or a spouse covered by a retirement plan at work? If so, your IRA contributions may not be deductible if you earn more than the annual income limits.

Action Items

To use this strategy:

  • If you don't already have an IRA, open one at a brokerage, bank, or other financial institution.
  • Make a contribution to the IRA before the tax return filing deadline, which is on or around April 18th.

Limits (2023)

Your deductible IRA contributions are limited to:

  • $6,500; or
  • $7,500 if you’re age 50 or older.

If you or your spouse are covered by an employer’s retirement plan, your contributions are 100% deductible if your “Modified Adjusted Gross Income” is below:

  • $73,000 if you’re filing as Single or Head of Household;
  • $116,000 if you’re filing as Married Filing Joint.

If you or your spouse are covered by an employer’s retirement plan, then your contributions are 100% deductible if your “Modified Adjusted Gross Income” is below:

  • $83,000 if you’re filing as Single or Head of Household;
  • $136,000 if you’re filing as Married Filing Joint.

If you or your spouse are covered by an employer’s retirement plan, and your income is over these limits, then your IRA contribution is not deductible.

IRC References

I.R.C § 408 Individual retirement accounts -

“For purposes of this section, the term ‘individual retirement account’ means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:”

This content is for informational purposes only and does not constitute legal, business, or tax advice. You should consult your own attorney, business advisor, or tax advisor regarding matters mentioned in this post. We take no responsibility for actions taken based on the information provided.

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