IRA Tax Deduction
One of the main reasons why people begin contributing to an individual retirement account (IRA) isn’t just for the savings potential ahead of the retirement years. An IRA tax deduction is one of the added benefits of making contributions to an IRA. Tax-free or tax-deferred growth on earnings is one of the primary advantages associated with a retirement savings plan of this kind and the more you know about it, the bigger the chances of you receiving a non-refundable tax credit. In some cases, the credit you receive might even be up to 50 percent of what you contribute, which simply adds to the many reasons why this type of investment is worthwhile! Before you fill in your tax return and send it off, enlighten yourself on the deductibility of IRA contributions.
What has Modified Adjusted Gross Income (MAGI) got to do with IRA tax deduction?
Modified Adjusted Gross Income, better known as MAGI, is used to determine eligibility for many things nowadays, including healthcare, insurance, and an IRA tax deduction. To figure your MAGI out, calculate the entire amount of income earned in your household. This amount should include tax-exempt interest income. Although MAGI is fairly similar to Adjusted Gross Income (AGI), it is important that you do not confuse the two when determining how much your tax deduction will be for an IRA.
The Effects of MAGI on IRA Tax Deduction
A partial deduction will be granted if your MAGI works out as over $61,000, but less than $71,000 per year. Keep in mind that this partial deduction will only be granted if you are filing the IRA tax deduction as the head of the household, or as a single person. A full deduction up to your contribution limit amount will be allowed if MAGI is less than $61,000. Married people who are filing separately will be granted no deduction if earnings are $118,000 or more, but can make a partial deduction with MAGI of less than $10,000. MAGI’s effects are slightly different for joint-filing married couples.
Do you have questions about getting an IRA tax deduction? Clear up confusion by contacting a member of the team at Goldco.