Can I deduct IRA contributions on my taxes? 2024 Update

Updated to 2024 IRS Amounts: A Guide to IRA Contributions and Deductions

Navigating the intricacies of IRA contributions and deductions can be daunting, but understanding the interplay between filing status, Modified Adjusted Gross Income (MAGI), and eligibility is crucial. Let’s dive into the key considerations for 2024 while exploring illustrative examples to clarify these concepts. For further details, refer to IRS Pub 590-A and the FAQs on IRAs.

General Rules for IRA Contribution Deductibility

The ability to deduct IRA contributions hinges on several factors:

• Filing Status

• Participation in Employer Retirement Plans (e.g., 401(k), 403(b))

• MAGI Limits for Deductibility

If an employer retirement plan covers you, the following MAGI thresholds apply:

• Single or Head of Household: Phase-out begins at $73,000 and ends at $83,000.

• Married Filing Jointly (MFJ) or Qualifying Widow(er):

• If both spouses are covered, phase-out begins at $116,000 and ends at $136,000.

• If only one spouse is covered, phase-out begins at $218,000 and ends at $228,000.

• Married Filing Separately: Partial deduction for MAGI up to $9,999; no deduction at $10,000+.

Annual IRA Contribution Limits (2024):

• Under 50: $7,000

• 50 and Older (with Catch-Up): $8,000

Example 1: Jack and Jill

Jack and Jill, both under 50, file jointly and participate in their employers' retirement plans. Their MAGI for 2024 is $120,000.

Jack: Contributed $23,000 to his employer’s plan, maxing out the elective deferral limit. Can he contribute to an IRA and deduct it?

• Yes and no. Jack can contribute to an IRA, but his MAGI exceeds the phase-out limit for deductions. He must file Form 8606 to report non-deductible contributions and track his cost basis.

Jill: Contributed $4,000 to her employer’s plan. Can she contribute to an IRA and deduct it?

• Yes. Jill can contribute up to $7,000 and deduct it since their MAGI is within the limit for partial deductibility. Her total contributions across all accounts must not exceed her taxable income.

Example 2: Peter

Peter is single, under 50, with a MAGI of $78,000. He contributed $18,000 to his employer’s plan in 2024.

Can Peter contribute to an IRA, and is it deductible?

• Yes, Peter can contribute up to $7,000 to an IRA. However, due to his MAGI being in the phase-out range, only a portion of his contribution is deductible. Peter needs to calculate the exact deductible amount using the IRS worksheet and report any non-deductible portion on Form 8606.

Example 3: Janet and Bob

Janet and Bob, filing MFJ, have a MAGI of $140,000. Neither is covered by an employer retirement plan.

Can they contribute to an IRA, and is it deductible?

• Yes. With no employer plan coverage, MAGI phase-out limits don’t apply. Janet can contribute and deduct up to $7,000, while Bob, over 50, can contribute $8,000 (including the catch-up). Both contributions are fully deductible.

Roth IRA Contributions: Key Points

Unlike traditional IRAs, Roth IRA contributions are not deductible, but MAGI limits still apply:

• Single/Head of Household: Phase-out begins at $146,000, ends at $161,000.

• Married Filing Jointly: Phase-out begins at $218,000, ends at $228,000.

• Married Filing Separately: Not allowed if MAGI exceeds $10,000.

Annual contribution limits for Roth IRAs mirror traditional IRAs: $7,000 (under 50) and $8,000 (50+).

Final Thoughts

To ensure compliance and maximize your retirement savings, regularly verify contribution limits and MAGI thresholds on the IRS website. If you’re uncertain about your eligibility or need tailored advice, consult an expert. Click here to schedule an appointment with Lisa Brugman, EA & Associates.

Stay informed, contribute wisely, and plan for a secure financial future!