Are You Eligible for the IRA Deduction? It Depends

Your ability to take an IRA deduction is subject to the limitations below.

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••• Don't let the IRA deduction escape. Gary Waters/Ikon Images/Getty Images

Can you take an IRA deduction for the amount you contribute to a traditional IRA? It depends.

It is important to examine eligibility requirements set by the IRS. If you're eligible, In 2018 you may take an IRA deduction for contributions to a traditional IRA in amounts up to:

  • $5,500 for those age 49 and under. 
  • $6,500 for those age 50 and older. 

Limits on the IRA Deduction

  • Your IRA deduction may be limited if you contribute to a company-sponsored retirement plan.
  • Your IRA deduction may be limited depending on the amount and type of income you report.

Details on the limitations to your IRA deduction are listed below. You can also read more by going to the IRS website.

IRA Deduction Limits When You Have a Company Sponsored Retirement Plan

A person is considered to be a participant in a company sponsored retirement plan if their account balance received any contributions at all in a given year, even if it was all company contributions. If you participate in any company sponsored retirement plans, then your ability to deduct your IRA contribution on your tax returns is subject to the income limitations below:

  • For 2018, the IRA deduction is phased out if you have between $63,000 and $73,000 of adjusted gross income (AGI) for single filers. If your modified AGI is over $73,000 you are allowed no deduction. (The 2017 phaseout range was $62,000 - $72,000.)
  • For 2018, the IRA deduction is phased out between $101,000 and $121,000 (up from the 2017 range of $99,000 - $119,000) if filing jointly or if you are a qualified widower. Modified AGI over $121,000 allows no deduction.

What If My Spouse Has a Company Retirement Plan and Participates?

If you are not a participant but your spouse is, then, IRS allows you a full deduction up to the contribution limits if your household income was below the following ranges:

  • For 2018, the deduction is phased out between $189,000 and $199,000 of adjusted gross income for married filing jointly when one spouse is a company retirement plan participant. Modified AGI over $199,000 allows no deduction. ​

Income Limitations on the IRA Deduction

You must have earned income to make an IRA contribution. Investment income does not count. Rental income does count.

  • As long as you or a married spouse are not participants in a company-sponsored retirement plan, you and your spouse can take the IRA deduction regardless of how much you make.
  • If you are a participant in a company sponsored retirement plan, your IRA deduction will be subject to the income limitations listed in the section above.
  • If you have enough earned income, you may also make an IRA contribution, and take an IRA deduction, for a non-working spouse. This is called a spousal IRA contribution.

Roth IRA Contributions

Roth IRA contributions are not eligible for the IRA deduction, but you may be able to contribute to a Roth IRA or Roth 401(k).

Non-Deductible IRA Contributions

If you are not eligible for the IRA deduction, you can still make the contribution. It is called a non-deductible IRA contribution, and the funds inside the account will grow tax-deferred until a distribution occurs.