Do
you qualify?
In 2008, you qualify to subtract
your entire contribution if you have a modified AGI
of up to $53,000 if you’re filing a single tax
return and up to $83,000 if you’re filing a joint
return. You may qualify to subtract part of your contribution
if you’re single and your AGI is $63,000 or less.
If you’re filing a joint return, you can deduct
a portion of your contribution up to an AGI of $105,000.
It works on a sliding scale, so that if you're single for every additional
$1,000 you earn you can deduct $500 less. If you're married and filing a joint return, you can deduct $250 less for every additional $1,000 you earn. The balance
can go into a nondeductible account or a
Roth IRA.
Income limits are indexed annually for inflation.
For example, if you were a single
taxpayer and had a modified AGI of $55,000, you could
put $4,000 in a deductible account and subtract that
amount from your gross income when you fill out your
tax return. And you could put $1,000 more in a nondeductible
account, for a total contribution of $5,000.
You can always deduct your full
contribution if your employer doesn’t offer a
retirement plan, or if you don’t qualify to contribute.
Either way, there’s no limit on the amount you
can earn.
However, once you turn 70 1/2, you
can’t make any more contributions to a traditional
IRA, even if you’re still working. In fact, you
must start taking mandatory withdrawals.
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