What Are Deductible IRA Contributions?

By Kent Ninomiya

  • Overview

    Deductible IRA contributions are deposits into an IRA account that can be deducted on a tax return. IRA contributions are only tax-deductible on certain types of IRAs and only in the tax year in which they are made. It is also important to realize that some people are not eligible to make deductible IRA contributions. The Internal Revenue Service enforces very strict income limits.
  • Types

    Only one type of IRA is eligible for deductible IRA contributions. This is a Traditional IRA. The amount of the contribution can be deducted from an eligible investor's taxes during the year of the contribution. Roth IRA contributions are not deductible. They can only be made with money that has already been taxed.
  • Income Limits

    The Internal Revenue Service only allows deductible IRA contributions for investors who meet the income requirements. As of 2008, if a single person has a Modified Adjusted Gross Income higher than $63,000 or a married person has an AGI higher than $105,000, they get no tax deduction for contributions to a Traditional IRA. A single person with an MAGI between $53,000 and $63,000 as well as a married people with MAGI between $85,000 and $105,000 get a partial tax deduction. Those with lower MAGI can deduct the entire Traditional IRA contribution.

  • Contribution Limits

    The maximum amount of a deductible IRA contribution changes from year to year. Prior to 2002 the limit for investors under 50-years-old was $2000. The IRS raised that to $3000 in 2002, then $4000 in 2005, then $5000 in 2008. The Internal Revenue Service is expected to continue raising IRA contribution limits in the future. Always check with the IRS for current contribution limits before attempting to make deductible IRA contributions.
  • Catch Up Contributions

    The IRS allows deductible IRA catch up contributions for eligible investors 50-years-old and older. They must meet the same income requirements as everyone else. Catch up contribution maximums are higher and also change from year to year. Before 2002 the limit was $2000. The IRS raised it to $3500 in 2002, then $4500 in 2005, then $5000 in 2006, and $6000 in 2008. As with other contribution limits, be sure to check with the IRS for the latest maximum deductible catch up IRA contributions for older investors.
  • Time Frame

    Deductible IRA contributions can be made for a given tax year up to the tax filing deadline. This means you can make a deductible IRA contribution up to April 15 of the following calendar year and still deduct if from the previous year's tax return.
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