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Are IRA contributions tax-deductible?

April 5, 2022
|
Insights
updated on
April 15, 2024

Key Takeaways

  • While a Roth IRA offers significant tax advantages, contributions to a Roth are never tax-deductible.
  • The income limits for tax-deductible contributions vary and depend on whether or not you are covered by a retirement plan at work.
  • You can open and fund a traditional Alto IRA or CryptoIRA today to potentially claim a deduction on your taxes.

If you contribute to an individual retirement account, you may be wondering if they’re 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 tax year up until Tax Day, which can vary in April every year. 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. 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 2024 contribution limit for both a traditional and Roth IRA is $7,000 ($8,000 if you’re older than 50). 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.

Another important note is that 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.

Income limits for tax-deductible contributions

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 you 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, for 2024.

Filing Status MAGI Deduction
Single or head of household $66,000 or less Full deduction
More than $66,000 but less than $76,000 Partial deduction
$76,000 or more No deduction
Married filing jointly or qualifying widow(er) $105,000 or less Full deduction
More than $105,000 but less than $125,000 Partial deduction
$125,000 or more No deduction
Married filing separately Less than $10,000 Partial deductiont
$10,000 or more No deduction

Deduction limits if your employer does not offer a retirement plan

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 2024 IRS deduction limits if you are not covered by a retirement plan at work.

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 $198,000 or less Full deduction
More than $198,000 but less than $208,000 Partial deduction
$208,000 or more No deduction
Married filing separately with a spouse who is covered by a plan at work Less than $10,000 Partial deductiont
$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 in April. 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.

The bottom line

IRA contributions will typically be tax-deductible depending on the specific considerations of the contributing plan and your unique financial situation.

The tax advantages offered by a self-directed IRA can be directed at alternative assets with an Alto IRA.

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