Can I Make A Deductible IRA Contribution?

[Checklists and Flow Charts] - Can I Make a Deductible IRA Contribution? | The Retirement Planning Group

A traditional IRA is a great option for investors looking to save for retirement in a tax-deferred account. Some IRA contributions are deductible IRA contributions, meaning you can receive a tax savings when you save for retirement! However, you must first be eligible to make these contributions and if so, contribute to the right type of IRA to receive the deductions. We made a handy flow chart to help answer your questions, or read on.

Can I Make a Deductible IRA Contribution?

Here are a few questions to answer:

  1. Do you or your spouse have earned income?
  2. Did either of you contribute to a Roth IRA?
  3. Did you or your spouse contribute to an employer-sponsored retirement plan? (401k, 403b, 457)
  4. What is your modified adjusted gross income (MAGI)?

If you answered no to question 1, you cannot make a deductible IRA contribution. This is only available to those with earned income. What is earned income? It is the taxable income and wages one earns through wages by working for themselves or someone else[M1]. If you answered yes, you may qualify!

For question 2, if you answered yes, you may be eligible for a partial deduction. In this scenario, make sure to speak with a professional to get the best advice. If you or your spouse did not contribute, congratulations! You may qualify for a tax-deductible contribution.

The next two questions are related. If you or your spouse are covered by an employer-sponsored plan, then your deductible amount is based on your modified AGI. However, if neither of you participated[M2] then your full amount is most likely deductible regardless of your modified AGI.

What is your modified adjusted gross income (MAGI)? In short, it is your income adding back any contributions or deductions. To calculate this amount, you’ll want to calculate your adjusted gross income Form 1040 and add back IRA or student loan interest deductions, tuition, self-employment tax, etc.

For specifics, you can reference this article on Investopedia, or the best idea is to check with a tax professional as these calculations can get complicated if you are close to limits. Our handy flow chart also helps with understanding the specifics behind contribution rules.


[M1] – IRS

[M2] – IRS

What Type of IRA Can I Contribute To and Receive a Deduction?

The only IRA you can contribute to and receive a deduction from is a traditional IRA. This is funded with pre-tax dollars from your income. This contribution reduces your taxable income for the year you contribute. Since the tax has not been collected, this type of account grows tax deferred, or you pay taxes when you take money out.

Roth IRA is funded with post-tax, or after-tax, dollars. This type of IRA grows with no tax being collected when you remove money later in life, so this type of account is sometimes called tax-free.

How to decide which account is right for you? It really depends on what your income is now and what you may expect your income at retirement to be. If you project that your retirement income will be higher, or that you’ll be in a higher tax bracket, then opting to pay taxes now at a potentially lower income tax bracket vs later in life could be beneficial. No one can predict the future, so having a financial professional help with your future projections, developing a plan, and making the best moves now is key.

What is the Total Amount I can Deduct from My IRA Contributions?

This amount changes and is different by age and income. For 2024, this amount is $7,000 up to age 50. Over age 50, you can contribute up to $8,000 per person. This is the total contribution for all your Roth and Traditional IRAs.

Making a Deductible IRA Contribution

Taking advantage of any and all tax savings is a smart move. The answer to if you can make a deductible IRA contribution depends on several factors: including your age, income, spouse’s situation, and more. Make sure you have the best answers for your financial situation by working with a financial advisor.

Our team at The Retirement Planning Group has more than 2,000 families* we work with all over the country. If you’re ready to take control of your finances, schedule your free 10-minute guidance call with one of our team members. We aim to be the easiest firm to work with on planet earth and are ready to show you just how easy it can be.