Contributions to a traditional individual retirement account can be tax-deductible in the year you make them. Different IRS rules on IRA contributions apply to differing situations. However,
- You can generally deduct the full amount of an IRA contribution if you and your spouse aren't covered by retirement plans at work.
- If you and your spouse are covered, your contribution might be limited based on your adjusted gross income.
For example, if you are in the top tax bracket of 37% and make a $6,000 deductible contribution—the maximum for 2021—you can save as much as $2,220 in taxes based on 2021 tax rates. Best of all, unlike most tax-saving strategies that must be in place by December 31, you can contribute to an IRA all the way until tax filing day.
April 18 2022 is the last day to contribute to a traditional IRA for the year 2021.
The tax reduction is not a dollar for dollar reduction to the amount of contribution. Depending on your tax bracket, you get the tax reduction. Another, point to be noted is that the IRA contribution is only allowed to the extent of your earned income if earned income is less than $6,000.
