Should I Increase my 401k Contribution to reduce MAGI so I get a tax break from IRA?

[chubbychu]

If i'm understanding correctly, my MAGI is too high for a tax benefit from my IRA

I currently make $80k with 3% of that going into a non-matched company 401K and also have a small IRA managed by Betterment which gets roughly $1.5k/year. (I keep depositing into Betterment because the minimum deposit amount is ~$100/month to maintain the portfolio).

Anyways, I guess the MAGI limit for those sponsored by a company plan is roughly $60-$71k so does it make sense for me, next year (2017) to increase my 401k contribution to get me roughly $2k under the $71k limit so that I can a tax break on the Betterment IRA? 

[ChristinaS]

Yes, if you want to benefit from having this (Traditional) IRA, your income needs to go down. Reducing your income via 401(k) contributions is an easy way to do this, so long as you can handle the reduced income in your paycheck.

In order to get a full-benefit, you'd have to be contributing A LOT more to the 401(k). Is this worth it?

To get a full deduction, you'd have to have MAGI at or below $62,000 in 2017. Otherwise, you are still looking at a partial deduction. If you contribute $2000 to the IRA and get a $1500 deduction, you might save $375 on your taxes. And have thousands less in your take home.

https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-i...

[chubbychu]

So helpful, thank you for laying that out, definitely good to think about. On one hand, I definitely already feel the pinch on take-home; but on another it's all going back to me which is nice - I guess in this case I'll just put in whatever I can and take the partial deduction.

Quick question, but do you know how to calculate the partial deduction? Say I get my MAGI down to 67k (halfway down the 10k spread for a partial deduction) would my $2000 IRA get a tax break of 50%?

[ChristinaS]

I'll use 2016, as the resources are available:
Take $71,000
Subtract your MAGI ($67,000)
Multiply $4000 by 55% (single, under 50) =$2200 That's the most you can deduct. Might save 25%- $550.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p590a/ch01.html#en_US_2016_publink1000230533">https://www.irs.gov/p...>