Yes, IRA contributions are tax-deductible — if you qualify.
Here’s how to figure out if you qualify to deduct your traditional IRA contributions:
If you don’t have a work retirement plan
If you, and your spouse if you’re married, don’t have a retirement plan at work, the answer is easy: You qualify to claim a deduction on your tax return for the contributions you make to your traditional IRA. Keep in mind that you must have income from work to contribute to an IRA. (Spouses who don’t have their own income may be eligible for a spousal IRA.)
If you do have a work retirement plan
If you do have a retirement plan at work, or if your spouse does, then your ability to deduct contributions depends on whether your income is above the traditional IRA income limits. (Note: These income limits usually change each year, due to IRS inflation adjustments.)
- If your income is under the limits, you’re eligible to claim a tax deduction for your contributions to a traditional IRA.
- If you’re in the income phase-out range, you can deduct a portion of your contributions.
- If your income is higher than the maximum income limit, then you can’t deduct your IRA contributions.
» Check out the traditional IRA income limits for 2019 and 2020
Even if you can’t deduct your IRA contributions, you can still make contributions to that account. With a nondeductible IRA, you don’t get to claim an immediate tax deduction, but your money grows tax-deferred. When it comes time to withdraw your money in retirement, you’ll owe taxes on the investment earnings in a nondeductible IRA, but not on the money you contributed, assuming you follow the IRA withdrawal rules.
Keep in mind that the annual maximum contribution of $6,000 ($7,000 if 50 or older) applies to your traditional and Roth IRAs, combined. If you put $6,000 in your Roth IRA, you can’t also put $6,000 in your traditional IRA.
Here are some of our top picks for best IRA accounts:
» See the complete round-up of best IRA accounts