 Deductibility of a traditional IRA
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 Dear
Tax Talk,
My salary is between $75,000 and $80,000. I will be filing as head
of household (single). I currently do not have an IRA with my employer.
If I open a $4,000 traditional IRA before April 17th, will it be
deductible?
-- Abigail
 Dear
Abigail,
It's always good to have a refresher on IRA contributions. An IRA
is a retirement account that you establish, fund and control through
a bank, insurance company, stockbroker or other qualified custodian.
Anyone under age 70½ with earned income can establish an
IRA. Earned income is income from salary, wages, commissions, self-employment
or alimony. In 2006 you can contribute up to the lesser of a) $4,000,
$5,000 if you are age 50 or older in 2006, or b) your taxable compensation
to an IRA before the due date of your 2006 tax return: Monday, April
16, 2007.
Although everyone with compensation under the age
of 70½ can contribute to an IRA, the contribution may or
may not be deductible. If you are not a participant in a retirement
plan at work, you can deduct your contribution whatever your income
level. The retirement box on your W-2 should be marked if you
participate in a plan at work.
If you have a retirement plan at work you can still
contribute, but you may not be able to deduct the contribution depending
on your modified adjusted gross income, or AGI, and filing status.
If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.
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Tax deductibility of an IRA |
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| single or head of household |
$50,000 or less |
a full deduction |
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more than $50,000 but less than $60,000 |
a partial deduction |
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$60,000 or more |
no deduction |
| married filing jointly or qualifying widow(er) |
$70,000 or less |
a full deduction |
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more than $70,000 but less than $80,000 |
a partial deduction |
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$80,000 or more |
no deduction |
| married filing separately |
less than $10,000 |
a partial deduction |
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$10,000 or more |
no deduction |
You are over this limit, but since you do not have
a retirement plan at work, you can deduct your contribution to the
IRA. Publication
590 has further information to help taxpayers determine their
modified AGI and other limitations.
To ask a question on Tax Talk, go to the "Ask
the Experts" page and select "taxes" as the topic.
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