topic Traditional IRA contribution is not deductible when income is over 75k? in Deductions & credits

Traditional IRA contribution is not deductible when income is over 75k?

VAer — Tue, 30 Mar 2021 23:42:52 GMT

I opened a traditional IRA last year, and just realized that my contribution is not deductible (Turbotax website).

Fortunately, I did not contribute much on traditional IRA, instead I contributed most on Roth IRA.

Regarding no deduction on traditional IRA when income surpasses $75k: is it the new policy or has it been there for a long time? I mistakenly thought traditional IRA contribution is before tax money and already deductible.

If it is not deductible now, do I need to pay tax when withdrawing money after retirement?

Thanks.

Re: Traditional IRA contribution is not deductible when income is over 75k?

DavidD66 — Wed, 31 Mar 2021 00:01:31 GMT

If you are covered by a retirement plan at work, are single (or head of household), you cannot deduct an IRA contribution if your income is more than $75,000. The amounts have increased slightly over the past several years, but that rule has been in place for a while.

Withdrawals from a traditional IRA are taxable, but the portion of it that is an after tax contribution is not taxable.

Re: Traditional IRA contribution is not deductible when income is over 75k?

macuser_22 — Wed, 31 Mar 2021 00:03:35 GMT

@VAer wrote:

I opened a traditional IRA last year, and just realized that my contribution is not deductible (Turbotax website).

Fortunately, I did not contribute much on traditional IRA, instead I contributed most on Roth IRA.

Regarding no deduction on traditional IRA when income surpasses $75k: is it the new policy or has it been there for a long time? I mistakenly thought traditional IRA contribution is before tax money and already deductible.

If it is not deductible now, do I need to pay tax when withdrawing money after retirement?

Thanks.

Deduction limits when covered by a retirement plan at work have been there forever.

The non-deductible part will be prorated when a distribution is make. A 8606 form should be part of your tax return. Retain it because you will need the box 14 amount if you make another nondeductible contribution in the future or take a distribution.

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

Re: Traditional IRA contribution is not deductible when income is over 75k?

VAer — Wed, 31 Mar 2021 00:07:58 GMT

Yes, I am covered by a retirement plan at work.

So if not single, then it is deductible? Maybe I should wait till married before making more contribution.

I should only contribute to Roth IRA while being single.

Thanks.

Re: Traditional IRA contribution is not deductible when income is over 75k?

macuser_22 — Wed, 31 Mar 2021 00:27:58 GMT

@VAer wrote:

Yes, I am covered by a retirement plan at work.

So if not single, then it is deductible? Maybe I should wait till married before making more contribution.

I should only contribute to Roth IRA while being single.

Thanks.

You might want to talk to a financial planner (or do some online research). Most young people are much better off in the long term with a Roth IRA since it is not taxable when you take distributions when retired and over age 59 1/2 while Traditional IRA distributions are taxed at any age when distributed (the non-deductible contributions will reduce the tax somewhat depending on the amount).

The "deductible" Traditional IRA contribution to reduce tax *now* can be attractive but look at the long term if you are investing for retirement.