TT Recommending IRA contribution; we are over MAGI limit

[Kharris92130]

TT is suggesting we contribute to IRAs, and calculates this will save us Federal and State taxes this year, but we are over the MAGI limits.  Please tell me how this works!

Some details:

My husband retired and receives monthly pension distributions. He also does consulting on the side. Our MAGI is over the limit of $214,000 for MFJ.  

The software encouraged me to play around with differing IRA contributions.  If I enter $7,000 or less for EACH of us (we are over 50) the Tax Due calculator shows a reduced Federal and State amount. 

Can someone explain why we can make deductible contributions to IRAs?

[DanaB27 · Accepted solution]

Yes, traditional IRA contributions may be tax-deductible. But the deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Please see IRA deduction limits for details. If you do not have any retirement plans at work then your deduction won't be limited.

Please be aware you need taxable compensation to make IRA contributions. Retirement income won't count but self-employment income counts as taxable compensation.