Can You Deduct Traditional IRA Contributions on Your Taxes?

Saving for retirement through a Traditional IRA can provide tax benefits, but not everyone qualifies for a deduction. Eligibility depends on income, filing status, and access to an employer-sponsored retirement plan.

Who Qualifies for Deductions

Deductibility of Traditional IRA contributions depends on whether you or your spouse participate in a workplace retirement plan, such as a 401(k) or 403(b). If neither of you are covered, you can deduct the full contribution regardless of income. If either of you has access to one, the deduction may be limited based on modified adjusted gross income (MAGI) and filing status.

For single filers or heads of household, the deduction is unrestricted unless covered by a workplace plan, in which case it phases out based on income. Married couples filing jointly follow different rules. If the contributing spouse is covered by an employer plan, their deduction is subject to income limits. However, the spouse without coverage may still qualify for a full or partial deduction depending on household income.

Self-employed individuals with a SEP IRA or SIMPLE IRA should note that these accounts follow different tax rules. SEP IRA contributions are generally deductible as a business expense rather than a personal deduction.

Phase-Out Thresholds

Deductibility begins to phase out once MAGI exceeds certain limits, which vary by filing status and workplace retirement plan coverage.

For 2024:
– Single filers covered by an employer-sponsored plan see their deduction phase out between $77,000 and $87,000.
– Married couples filing jointly, where the contributing spouse is covered, phase out between $123,000 and $143,000.
– If only one spouse is covered by a workplace plan, the uncovered spouse’s deduction phases out between $230,000 and $240,000.

Once income falls within the phase-out range, only a portion of the contribution remains deductible. The deductible amount is calculated using a prorated formula, reducing the deduction incrementally as income increases. The IRS provides worksheets in Publication 590-A to determine the exact deductible amount.

The Maximum Deductible Amount

For 2024, individuals under 50 can contribute up to $7,000 to a Traditional IRA. Those 50 or older can make an additional $1,000 catch-up contribution, bringing their total limit to $8,000. These limits apply across all Traditional and Roth IRAs combined.

Only earned income—such as wages, salaries, or self-employment earnings—qualifies for IRA contributions. Investment income, rental income, and pension payments do not count. If earned income is lower than the contribution limit, the maximum contribution is restricted to earnings. For example, if you earned $5,000 from part-time work, you could only contribute up to $5,000.

Handling Excess Contributions

Exceeding the contribution limit results in a 6% excise tax on any excess amount that remains in the account at year-end. This penalty applies annually until corrected.

To avoid penalties, the excess amount must be withdrawn before the tax filing deadline, including any earnings. If removed by the due date—typically April 15 (or October 15 with an extension)—the excise tax can be avoided. However, any earnings on the excess contribution are considered taxable income for the year of withdrawal and may also be subject to a 10% early withdrawal penalty if under 59½.

An alternative is recharacterizing the excess contribution by transferring it to a Roth IRA, if eligible. If the excess is not corrected in time, it can be carried forward and applied toward future contribution limits, though the 6% penalty continues until absorbed.

Spousal IRA Considerations

A Spousal IRA allows a non-working or lower-earning spouse to contribute to a Traditional IRA using household income. Contribution limits remain the same—$7,000 in 2024, or $8,000 for those 50 or older.

Eligibility for deducting Spousal IRA contributions depends on whether either spouse is covered by an employer-sponsored retirement plan. If neither has access to a workplace plan, both can deduct full contributions regardless of income. If the working spouse is covered, the deduction for the non-covered spouse phases out between a MAGI of $230,000 and $240,000 for 2024. This higher threshold makes Spousal IRAs a useful tax planning tool for high-income households.

Reporting the Deduction

Traditional IRA deductions are reported on IRS Form 1040, specifically on Schedule 1, where adjustments to income are listed. Unlike deductions that require itemization, IRA contributions are an “above-the-line” deduction, reducing taxable income even if taking the standard deduction.

Taxpayers should verify that Form 5498, issued by the IRA custodian, accurately reflects contributions. While not required to be submitted with the tax return, it serves as a record for verifying contributions if audited. If deductions are limited due to income phase-outs, the allowable deduction must be calculated using the IRS worksheet in Publication 590-A. Proper documentation ensures accurate reporting and avoids penalties.