IRA Tax Deduction

tax deduction for IRA

The ability to save for retirement isn’t the only reason people begin contributing to an individual retirement account (IRA). Contributions to your IRA can also be tax-deductible, leaving more money in your pocket at tax time.

An IRA tax deduction is one of the added benefits of making contributions to an IRA, in addition to the tax-free or tax-deferred growth on earnings. The more you know about the tax advantages of an IRA, the better you will be able to grow your retirement savings.

The tax advantages you can earn from contributing to an IRA are one of the many reasons this type of investment is worthwhile. So before you submit your tax return, learn more about IRA tax deductions.

What Is Modified Adjusted Gross Income (MAGI) and How Does It Affect an IRA Tax Deduction?

Modified Adjusted Gross Income, better known as MAGI, is used to determine eligibility for many things nowadays, including healthcare premiums, insurance costs, and IRA tax deductions. MAGI is fairly similar to Adjusted Gross Income (AGI), and for many people it may be the same. Still, it is important that you do not confuse the two when determining how much your tax deduction could be for an IRA contribution.

The Effects of MAGI on IRA Tax Deduction

For 2021 for those filing as single or head of household, a full deduction up to the amount of your contribution limit can be taken if your MAGI is $66,000 or less. A partial deduction will be granted if your MAGI is over $66,000 but less than $76,000 per year. And if your MAGI is over $76,000, you can’t take a deduction.

If you’re married filing jointly, you can take a full deduction if your MAGI is $105,000 or less. If your MAGI is more than $105,000 but less than $125,000, you can take a partial deduction. And if your MAGI is $125,000 or more, you can’t take a deduction.

If you have detailed questions about tax deductions related to IRA contributions, you’ll want to consult your tax advisor. And if you want to learn more about how to open an IRA, contact one of the experts at Goldco.

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