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Are IRA Contributions Tax-Deductible?

Post on January 5, 2023 in Blog

Originally published April 5, 2022

Tax Day is right around the corner. If you contributed to an individual retirement account in 2022, you may be wondering if your IRA contributions are tax-deductible. It’s important to know the factors that apply when determining whether you qualify for tax deductions on your IRA contributions, including IRA type, filing status, income, and whether your employer provides a retirement plan.

The good news is that you can still contribute to your IRA for the 2022 tax year up until Tax Day (April 18, 2023). This means you may be able to make a last-minute IRA contribution to reduce your taxable income. Read on to see if you qualify.

What Type of IRA Allows for Tax-Deductible Contributions?

While a Roth IRA offers significant tax advantages, contributions to a Roth are never tax-deductible. That’s because you are contributing to your account with post-tax money and will not owe taxes when you start taking distributions, enabling you to withdraw tax-free.

Read more: Am I Eligible for a Roth IRA?

On the other hand, a traditional IRA offers two unique tax benefits to investors:

  1. Contributions grow in your account tax-deferred until you are ready to take distributions.
  2. Your traditional IRA contributions may be partially or fully deducted from your income, ultimately reducing your tax obligation.

The contribution limit for both a traditional and Roth IRA is $6,000 ($7,000 if you’re older than 50) for the 2022 tax year. This limit is the total across all of your IRAs. As a rule of thumb, you cannot contribute more than you earn in a given year. For example, if your income is $2,000, that is your IRA contribution limit for the year. 

Individuals can’t contribute to an IRA unless they earn income in a given year. A spousal IRA is an exception to this rule, and you may qualify if you’re married and filing jointly. Read our blog post about IRA contribution limits for more in-depth information. 

If you’re ahead and looking toward the 2023 tax year, it’s important to note that the IRS recently increased the contribution limits, Roth IRA income limits, and traditional IRA deduction limits to account for inflation. However, this will not affect you for the 2022 tax year.

Read more: What the 2023 IRA Contribution Limit Increase Means for You

2022 Income Limits for Tax-Deductible Contributions

As mentioned earlier, the main factors at play when determining whether you qualify for a tax deduction on your traditional IRA contributions are income and whether or not your or your spouse’s employer offers a retirement plan. Remember, don’t give up on investing if you don’t qualify for the deduction; there are many benefits to investing in a traditional IRA, regardless of the deduction.

Deduction Limits if Your Employer Does Offer a Retirement Plan

Whether or not you can claim a tax deduction in this scenario depends on your income and filing status. If your or your spouse’s employer offers a retirement plan, then you can deduct your traditional IRA contributions if your modified adjusted gross income (MAGI) falls within the IRS deduction limits in the table below.

2022 Deduction Limits: Employer Does Offer a Retirement Plan

Filing Status MAGI Deduction
Single or head of household $68,000 or less Full deduction
More than $68,000 but less than $78,000 Partial deduction
$78,000 or more No deduction
Married filing jointly or qualifying widow(er) $109,000 or less Full deduction
More than $109,000 but less than $129,000 Partial deduction
$129,000 or more No deduction
Married filing separately Less than $10,000 Partial deduction
$10,000 or more No deduction

Deduction Limits if Your Employer Does Not Offer a Retirement Plan

This one is a bit more nuanced: If your employer doesn’t offer a retirement plan and you’re filing your taxes under the “single, head of household, or qualifying widow(er)” status OR you’re married filing jointly or separately with a spouse whose employer also does not offer a retirement plan, you qualify for a full tax deduction, regardless of income. Income limits do apply, however, if your spouse’s employer does offer a retirement plan but yours doesn’t.

Below are the IRS deduction limits if you are not covered by a retirement plan at work.

2022 Deduction Limits: Employer Does Not Offer a Retirement Plan

Filing Status MAGI Deduction
Single, head of household, or qualifying widow(er) Any amount Full deduction
Married filing jointly or separately with a spouse who is not covered by a plan at work Any amount Full deduction
Married filing jointly with a spouse who is covered by a plan at work $204,000 or less Full deduction
More than $204,000 but less than $214,000 Partial deduction
$214,000 or more No deduction
Married filing separately with a spouse who is covered by a plan at work Less than $10,000 Partial deduction
$10,000 or more No deduction

Could a Last-Minute IRA Contribution Reduce Your Taxable Income?

In short, yes. You can contribute to either a traditional or Roth IRA up until the tax filing deadline of April 18, 2023. Keep in mind that to reduce your taxable income (assuming all factors we’ve discussed apply), you’ll need to contribute to a traditional IRA and leave yourself (or your accountant) enough time to file before the deadline.

Open and fund a traditional Alto IRA or CryptoIRA® today, or add funds to your existing traditional IRA account to potentially claim a deduction on your 2022 taxes. (Note: Between New Year’s Day and Tax Day, many IRA providers require you to select which tax year you want your contributions put toward. To qualify for a deduction on your 2022 taxes, you must choose to make your contribution to the 2022 tax year.)

With an IRA from Alto, you can invest in potentially high-return alternative assets like startups, real estate, securitized art, crypto, and more with all the tax advantages of a conventional IRA.