2010 IRA Contribution Deduction

What is the IRA contribution deduction?

You may be able to deduct contributions you make to a traditional Individual Retirement Account (IRA).

Do I qualify for the IRA contribution deduction?

You may qualify for the IRA deduction if you made a regular contribution to a traditional IRA that is not a rollover contribution. A rollover is when you transfer funds from one IRA to another, or from a tax-deferred plan, such as a 401(k) plan, to an IRA.

Tip: The IRA contribution deduction is an above-the-line deduction and directly reduces your adjusted gross income (AGI). If you have a high income, this might allow you to qualify for other deductions and credits that you normally wouldn't get based on your income. You also don't have to itemize your deductions on Schedule A to take this deduction.

Eligibility requirements

 - You must be under age 70 1/2 at the end of the year.

 - You (or your spouse, if filing a joint return) must have earned income, such as wage, salary, or self-employment earnings.

Limitations of the IRA contribution

 - You must have earned income equal to or greater than the amount of your contribution.

 - You can contribute a maximum contribution of $5,000 ($6,000 if you're age 50 or older). If you're married filing jointly, you can each contribute the maximum (even if only one of you works), as long as your combined compensation is at least $10,000 ($11,000 if only one of you is age 50 or older, $12,000 if both of you are).

Limitations of the IRA deduction

 - You can deduct all of your contribution if you (and your spouse, if filing a joint return) are not covered by a retirement plan at work

 - If you (or your spouse, if filing a joint return) are covered by a retirement plan at work, you might be able to deduct all of your contribution, only part of it, or none of it, depending on your modified adjusted gross income (MAGI) and your filing status.

Income limits for deducting your IRA contribution

TurboTax automatically calculates your IRA contribution deduction for you based on your income, and tells you how much your deduction is in the Federal Review section of the Interview.

If you are covered by a retirement plan at work, here are the income limits:

If you are single or head of household:

 - You can deduct all of your IRA contribution if your modified adjusted gross income (MAGI) is $56,000 or less.
 - You can deduct part or your IRA contribution if your MAGI is $56,001 to $65,999.
 - You cannot deduct any of your IRA contribution if your MAGI is $66,000 or more.

If you are married filing jointly or a qualified widow(er):

 - You can deduct all of your IRA contribution if your modified adjusted gross income (MAGI) is $89,000 or less.
 - You can deduct part or your IRA contribution if your MAGI is $89,001 to $108,999.
 - You cannot deduct any of your IRA contribution if your MAGI is $109,000 or more.

If you are married filing separately and lived with your spouse:

 - You can deduct part of your IRA contribution if your MAGI is less than $10,000.
 - You cannot deduct any of your IRA contribution if your MAGI is $10,000 or more.

If you are married filing separately and did not live with your spouse:

- The limits are the same as for single filing status, above.

If you are not covered by a retirement plan at work but your spouse is, here are the income limits:

If you are married filing jointly:

 - You can deduct all of your IRA contribution if your modified adjusted gross income (MAGI) is $167,000 or less.
 - You can deduct part or your IRA contribution if your MAGI is $167,001 to $176,999.
 - You cannot deduct any of your IRA contribution if your MAGI is $177,000 or more.

If you are married filing separately and lived with your spouse:

 - You can deduct part or your IRA contribution if your MAGI is less than $10,000.
 - You cannot deduct any of your IRA contribution if your MAGI is $10,000 or more.

If you are married filing separately and did not live with your spouse:

- The limits are the same as for single filing status, above.

Credits related to the IRA contribution deduction

 - Retirement Savings Contribution Credit

More information about the IRA contribution deduction

For more information, see:

 - IRS Publication 590, Chapter 1, Traditional IRAs