Business & Finance Taxes

IRS Rules for Traditional IRA Tax Deductions

By Business & Finance Last updated Tuesday, May/28/2024

Single and Employer-sponsored Retirement Plan

If your filing status is single or head of household and you are covered by an employer-sponsored plan, you may be able to deduct your contributions to a traditional IRA plan if your modified adjusted gross income is low enough. For 2009, if your modified adjusted gross income is less than $55,000, your entire contribution is deductible. If your modified adjusted gross income is between $55,000 and $75,000, you can deduct part of the contribution. If your modified adjusted gross income is higher than $75,000, you cannot deduct any of your contributions to a traditional IRA.

For 2009, if you have an employer-sponsored plan, are married and file a joint return, you can deduct your contributions to your traditional IRA if your modified adjusted gross income is below $89,000. If your modified adjusted gross income is between $89,000 and $109,000, your deduction is reduced. If your spouse has an employer-sponsored retirement plan but you do not, you can take a full deduction if your modified adjusted gross income is less than $166,000 and a reduced deduction if your modified adjusted gross income is between $166,000 and $176,000.
If you file a separate return from your spouse and you or your spouse are covered by employer-sponsored plans, you cannot claim a full deduction. If your modified adjusted gross income is between $0 and $10,000, you can take a limited deduction.

For 2009, the maximum contribution you can make to your traditional IRA is $5,000 for people age 49 and under and $60,000 for people age 50 or older. If you have access to a work-sponsored plan and modified adjusted gross income puts you in the limited deduction range for your IRA contributions, you can determine the amount of your contribution that you can deduct by using the following formula, where C is your contribution limit, T is the top of the limited deduction range, B is the bottom of the deduction range and I is your modified adjusted gross income.
Maximum Deduction = C * (T - I) / (T - B)
Remember, just because the amount you can deduct decreases does not mean that the amount you can contribute decreases. You are still allowed to make the contribution to your traditional IRA and it will grow tax-deferred, you just cannot deduct as much.