I want to fund a new Traditional IRA to lower my AGI for filling my 2021 taxes. Will contributions from my bank account that is already taxed still lower my AGI for 2021?

Forum|Forum|4 years ago
November 30, 2021
14 replies
25 views

I would like to fund the account with the maximum, $6000, post tax from my bank account. Will this reduce my AGI by $6000 and give me a tax return on the taxes I already paid on the $6000?

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Critter-3

Level 15

Yes ... if you make a deductible IRA contribution that is how the process is set up to work. The contribution is an adjustment to income thus lowering your tax bill.

See these IRS IRA deduction limit charts.

If *you* are covered by a retirement plan:
https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

If you are *not* covered but your spouse is:
https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work

macuser_22

Alumni - Champ

As long as you are otherwise qualified to make a contribution.

The maximum IRA contributions for 2020 is $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year which ever is less.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deductible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2020_publink1000230355

See this IRS link for Traditional IRA deduction limits when covered by a retirement plan at work.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

acw380Author

Level 2

Thanks for the replies. I am qualified to make contributions as I do not exceed the maximum income limit and have not made any IRA contributions for the year. Pre-tax pay check contributions to a TIRA makes sense but how will I be able to make sure I get the post tax contributions back correctly? If I get a refund on the taxes I paid how will the tax software know how much? Is there a separate form? The main reason I want to do the TIRA is for the AGI reduction. If for some reason I cant get it I should just go with a Roth and same some headache.