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taxes

Traditional IRAs work fine for some filers

Income limits

Of course, for every rule that makes it easier to contribute to a traditional IRA, there are others that complicate the deduction process.

If you or your spouse has a retirement account at work, including a 401(k) plan option, a Keogh or simplified employee pension IRA, or SEP-IRA, for self-employment income, you might not be able to take the full tax break of a traditional IRA. But all immediate tax savings may not be lost. Some of your traditional IRA contribution still might be deductible, as long as your income falls below IRS limits.

For 2012 returns, a single or head-of-household filer with a company-provided pension plan can earn up to $68,000 and still get a partial IRA deduction. The earnings cap is $112,000 for joint filers where each partner has a company retirement plan. If you don't have a company plan but your spouse does, the modified adjusted gross income limit before you lose your full deduction is even higher -- $183,000.

The work sheet in the Form 1040 instructions, or 1040A booklet if you file that form, will help you figure out how much of your contribution you can deduct.

Other IRA considerations

Employer-sponsored retirement options aside, keep in mind that you might not be able to max out your IRA contribution at the annual limit.

You can contribute, and potentially deduct, only as much as you earn. If you make $3,800 this year, then that's the most you can put in any IRA.

And if you're 70 ½ or older, you can't put any more money into your traditional IRA. In fact, that's the age when the IRS demands you start taking money out of your traditional, tax-deferred retirement account.

So is a traditional IRA right for you? Only a thorough examination of your overall financial and tax circumstances can tell. Do your homework and look at the earnings potential and tax savings -- now and in the future -- of each IRA type. You have until the April tax-filing deadline to decide which is best for you.

 

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