Traditional IRA Partial Deduction

[diasjj]

For the 2023 tax year, I was married filing jointly, my spouse and I were under 40 years old, and our MAGI was $121,722. Both my wife and I had 401Ks from our employer.  We contributed the max of $6,500 each ($13,000 total) to each of our respective Traditional IRAs.  That puts our traditional IRA income deduction phase out range at $116,000 - $136,000.  TT’s calculations tells me I can only deduct $9,280, not the full $13,000 Traditional IRA I contributed to.  This sounds about right, but I need to know what the math/formula is for coming to this conclusion?   I’ve spent hours looking for this formula on Google and TT to no avail.  I’ve found several calculators but they don’t seem to match what TT calculated—I don’t know who to believe. 

[MinhT1 · Accepted solution]

Assuming that your MAGI is $121,722, the formula is as follows:

Non Deductible part = ((121,722 - 116,000) / 20,000) x 13,000 = 3,719

Deductible IRA = 13,000 - 3,791 = 9,209

Please note that the number to be used is the Modified AGI, and not the AGI.

For the calculation of the Modified MAGI, see the worksheet 1-1 on page 15 of IRS Publication 590-A.

[diasjj]

That's exactly the number Turbo Tax calculated. Thanks for showing the formula and math. Great job providing this impossible to find equation and the IRS source doc. 

[diasjj]

Where could I find this info for 2024, excluding MAGI of course which I will need to come up with on my own?

[DanaB27]

Here are the phase‑out ranges for 2024:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000. (IRS)

[diasjj]

Does the $20,000 part of the equation ever change in the formula for determining how much of the partial traditional IRA deduction I can claim?

Formula (for married file jointly, both have 401K plan at work):

Non Deductible part of Trad. IRA = ((MAGI / *116,000) / $20,000) x ***13,000 

*lower part of MAGI bracket provided by IRA

[DanaB27]

If both of you are covered by a retirement plan and are under 50 then you can calculate the IRA deduction for 2024 like this:

($143,000 - MAGI) x 0.35 = IRA deduction per spouse.

Please see 2023 IRA Deduction Worksheet—Schedule 1, Line 20 for additional information.

The multiplier is calculated by using the contribution limit for 2024 (7,000) divided by $20,000 (difference of upper and lower limit of phaseout range).

[LMcN]

What is the 20,000 denominator in your calculation?

[DanaB27]

The 20,000 is the difference of upper and lower limit of phaseout range for married filing jointly when covered by a retirement plan.

@LMcN