Who is eligible for a deductible ira

You can wait. The good news: Everyone can open and contribute to a traditional IRA. The bad news: Not everyone is eligible to deduct contributions to a traditional IRA. If you or your spouse has a retirement plan at work, the amount of your traditional IRA contribution that you can deduct is reduced, or eliminated altogether, once you hit a certain income.

If you, and your spouse if you're married, don't have retirement plans at work, then you can deduct your IRA contribution no matter how much your income. Note: The income limits apply to your modified adjusted gross income MAGI , which is your adjusted gross income with some deductions and exclusions added back in. These income limits apply only if you or your spouse have a retirement plan at work.

Single or head of household and covered by retirement plan at work. Married filing jointly and covered by retirement plan at work. Married filing jointly spouse covered by retirement plan at work.

Married filing separately you or spouse covered by retirement plan at work. Nondeductible IRA contributions can still be valuable: Money for retirement is money for retirement, and your investment earnings will still grow tax-deferred. In short, there are better options you should max out before going down the nondeductible IRA road. They are:. These accounts have income eligibility rules, but they are higher than the limits to deduct traditional IRA contributions.

See our IRA limits page. Your employer-sponsored retirement plan. Consider maxing that account out before making nondeductible IRA contributions.

That could actually make your eligible for an IRA deduction because your contributions to the workplace plan lower your taxable income for the year.

If after exhausting both of those options, you still want to consider the nondeductible route, see our page on nondeductible IRAs. But there are also these types of IRAs: backdoor Roth , spousal , self-directed , inherited and rollover.

It is possible, depending on what you invest your IRA money in. Over the long term — which is the investing time horizon you have in your IRA — investing in the stock market gives you the biggest bang for your buck. From a historical standpoint, an investment in an index mutual fund that tracks the returns of of the largest U.

The key to ensuring any losses are just temporary is to stay the course. Having a long-term investing time horizon and the temperament to weather the storm are how fortunes are made.

Fidelity Investments studied the behavior of about 1. Both IRAs and k s are retirement savings accounts, and both offer tax breaks as an incentive to sock away money for your future. But k s are available only through an employer in technical IRS language, they're employer-sponsored retirement plans while an IRA can be set up by any individual who has earned income.

You have until the tax filing deadline in April of the following year to make contributions to an IRA. Contributions to a k must be made by Dec. Some employers sweeten the pot with k s and kick in their own money to match a portion of what employees save.

That extra money may be subject to a vesting period. Investment offerings in a k are determined by the plan administrator. In an IRA the choices are much broader: If you choose to open an account at a discount brokerage you can pick from mutual funds, exchange-traded funds ETFs , stocks and more. You may need to reduce or entirely eliminate your IRA deduction if you or your spouse.

If you and your spouse are not eligible to contribute to an employer plan, you can deduct your contribution as long as you earn income during the year. For purposes of the IRA deduction, earned income excludes interest, dividends and similar types of investment income. The IRS limits the amount you can deduct each year, and this amount is subject to change each tax year.

This maximum tax deduction may also be subject to a reduction when your MAGI is too high. The IRS provides a worksheet with your tax return instructions to help you calculate your deduction. If you use tax software, such as TurboTax , you can avoid tedious calculations and let your computer calculate the deduction for you.

TurboTax can help you determine whether your IRA contributions are deductible and will calculate exactly how much you can deduct. The IRS categorizes the IRA deduction as an above-the-line deduction, meaning you can take it regardless of whether you itemize or claim the standard deduction. This deduction reduces your taxable income for the year, which ultimately reduces the amount of income tax you pay. If you cannot make a tax-deductible contribution to a traditional IRA, consider these alternatives.

Whether you have stock, bonds, ETFs, cryptocurrency, rental property income or other investments, TurboTax Premier is designed for you. Increase your tax knowledge and understanding all while doing your taxes.

From stocks, cryptocurrency to rental income, TurboTax Premier helps you get your taxes done right. Retirement Planning IRA. Table of Contents Expand. Income Limits. The Bottom Line. Key Takeaways Contributions to a traditional IRA are deductible in the year during which they are made.

There are upper-income limits on deductibility. The taxes on contributions to a Roth IRA are paid upfront, not when the money is withdrawn at retirement. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. The modified adjusted gross income MAGI you report on your tax return is used to determine if you qualify for certain tax benefits.

A traditional IRA individual retirement account allows individuals to direct pre-tax income toward investments that can grow tax-deferred. Investopedia is part of the Dotdash publishing family. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.