Deductible IRA Contributions
Everyone is eligible to establish and maintain an IRA, but whether your contributions into the IRA this year will be deductible depends on your (or, if married, you and your spouse's) income level and whether or not you are covered by another pension plan at work.
If neither you nor your spouse is covered under another retirement plan, you may both take full advantage of the tax deduction for the amount contributed, regardless of your income level.
If the individual making the contribution is covered under another retirement plan, the amount of the contribution eligible for deduction is determined by the filing status and adjusted gross income (AGI) of the couple, as shown on Line 37 of their Form 1040. Note that the test here is AGI - not earned income. That means that interest, dividends, capital gains, etc. are included in the total; what's more, AGI for this purpose is computed without considering the exclusion of Series EE bond interest shown on Form 8815, or the exclusion of employer-paid adoption expenses shown on Form 8839.
| 2007 Maximum IRA Deduction if Covered by a Retirement Plan |
| If you file a single return and AGI is no higher than: |
If you file a joint return and AGI is no higher than: |
Maximum deduction is lesser of 100% of compensation or |
| $52,000 |
$83,000 |
$4,000 |
| $53,000 |
$85,000 |
$3,600 |
| $54,000 |
$87,000 |
$3,200 |
| $55,000 |
$89,000 |
$2,800 |
| $56,000 |
$91,000 |
$2,400 |
| $57,000 |
$93,000 |
$2,000 |
| $58,000 |
$95,000 |
$1,600 |
| $59,000 |
$97,000 |
$1,200 |
| $60,000 |
$99,000 |
$ 800 |
| $61,000 |
$101,000 |
$ 400 |
| $62,000 |
$103,000 |
$ 0 |
The table above shows the limits that apply for those under age 50 in 2007. However, the maximum contribution allowed for those age 50 or older in 2007 is $5,000. In either case, use one of the IRA deduction worksheets provided by the IRS (e.g., in the Form 1040 Instructions) to figure out the exact amount. These dollar amounts will increase in the future.
AGI limits when only one spouse is covered. If the individual making the contribution is not covered by another retirement plan at work, but his or her spouse is covered by such a plan, the non-covered individual may make deductible contributions to an IRA. The AGI phaseout range for such contributions is $156,000 to $166,000, as shown on the following chart.
| Maximum Contribution When One Spouse is Covered by a Retirement Plan |
| If you file a joint return and AGI is no higher than: |
Maximum deduction is lesser of 100% of compensation or |
| $156,000 |
$3,000 |
| $157,000 |
$2,700 |
| $158,000 |
$2,400 |
| $159,000 |
$2,100 |
| $160,000 |
$1,800 |
| $161,000 |
$1,500 |
| $162,000 |
$1,200 |
| $163,000 |
$ 900 |
| $164,000 |
$ 600 |
| $165,000 |
$ 300 |
| $166,000 |
$ 0 |
If your contribution to an IRA is deductible, you don't need to file any special form to claim it, nor do you need to itemize deductions on Schedule A. Simply write the amount of your contribution (and your spouse's contribution, if married filing jointly) on Line 32 of Form 1040, or Line 17 of Form 1040A.
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