IRA: Can I deduct retirement plan contributions?

An individual retirement account (IRA) allows those in the United States to contribute some of their pre-tax income towards a retirement fund which can then gain interest and allow for a more fruitful amount of cash before this amount is eventual withdrawn ahead of retirement.

US taxpayers are able to contribute as much as 100 percent of any earned income, although thresholds may also apply. These kinds of contributions could also be subject to a tax deduction depending on each person’s income, tax-filing status, and other factors.

For example, the level of deduction could be dependent on whether or not one’s spouse is covered by a retirement plan at their workplace and whether the person’s income exceeds certain levels.

Filing when single

Someone who is single and does not have an sponsored retirement plan by their employer is able to deduct the full amount from a traditional IRA contribution. Restrictions are applied, however, if someone is covered by a retirement plan through their current employer.

If one’s modified AGI is $66,000 or less for 2021, or $68,000 for 2022, then a full deduction is available.

For incomes between $66,000 and $76,000 for 2021, or $68,000 and $78,000 for 2022, then a partial deduction is available.

When it comes to incomes that exceed $76,000 for 2021, or $78,000 for 2022, then no deduction is possible.

Filing when married

Things are different for married couples. When neither is covered by a retirement plan at work, then you are eligible for a full IRA deduction but, if one of the two is covered, then certain restrictions come into play.

If the modified AGI stands at $198,000 or less for 2021, or $204,000 for 2022, then a full deduction is applicable.

It becomes a partial deduction if incomes stand between the mark of $198,000 and $208,000 for 2021, and $204,000 and $214,000 for 2022, but no IRA reduction is possible when incomes exceed $208,000 for 2021, or $214,000 for 2022.