IRAs: Guide to Contributing & Deducting

By Argent Wealth Management, LLC on November 28, 2023

There are 2 important questions to consider when thinking about contributing to a Traditional IRA

1. Am I Eligible to Contribute¹ to a Traditional IRA?

• Contribution Eligibility is based on one factor: whether or not you (or your spouse, if MFJ²) has earned income³
  • You can only contribute the lesser of your earned income or $7,000 (plus an additional $1,000 catch-up contribution if you are over age 50) ⁴
  • If you are MFJ, and you do not personally have earned income, you can contribute the lesser of total couple earned income or $7,000 (plus an additional $1,000 catch-up contribution if you are over age 50), so long as total contributions in the couple do not exceed total couple earned income

2. Are These Contributions Tax Deductible?

• Deductibility is based on two factors: income limitations and whether or not you or your spouse is an active participant in an employer-sponsored retirement plan⁵, such as a 401(k)
  • If you are single and you have a retirement plan through work, or if both you and your spouse have a retirement plan:
    • Single Filers: Entirely deductible if your MAGI⁶ is < $77,000 (and partially deductible between $77,000 to $87,000)
    • MFJ: Entirely deductible if your MAGI is < $123,000 (and partially deductible between $123,000 to $143,000)
  • If you are MFJ and you have a retirement plan but your spouse does not:
    • Your contributions are entirely deductible for MAGI < $123,000 (and partially deductible between $123,000 to $143,000)
  • If you are MFJ and you do not have a retirement plan but your spouse does:
    • Your contributions are entirely deductible for MAGI < $230,000 (and partially deductible between $230,000 to $240,000)
  • If you are single and do not have a retirement plan through work, or if neither you nor your spouse do:
    • All contributions are entirely deductible, regardless of income

Special Note on Roth IRA Contributions

• You can only contribute the lesser of earned income or $7,000 (plus an additional $1,000 catch-up contribution if you are over age 50) – just like for a Traditional IRA⁷
• However, the income limitations are:
  • Single filers: MAGI < $146,000 (and partial contributions are allowed between $146,000 to $161,000)
  • MFJ: MAGI < $230,000 (and partial contributions are allowed between $230,000 to $240,000)
  • If you are above these income limits, there are methods such as a back-door Roth contribution that will allow you to contribute. For more details, feel free to contact us or read our blog piece on advanced Roth strategies

¹ Contributions do not include rollovers

² MFJ: Married Filing Jointly

³ Earned income is defined as wages/salary/tips/commissions/net self-employment income. It does not include dividends, gains, pensions, social security, or deferred compensation

⁴ All numbers in this guide are based on the updated 2024 IRS limits

⁵ An active participant in an employer-sponsored retirement plan is defined as a plan that has annual additions to a defined contribution plan or annual accrued benefits for a defined benefit plan. Plans include 401(k), SEPs, SIMPLEs, 403(b), defined benefit or pension, but NOT governmental 457 plans

⁶ MAGI: Modified Adjusted Gross Income = Your regular AGI for the year plus certain modifications such as tax-exempt interest, student loan interest, etc.

⁷ A spouse can contribute to a Roth IRA if he/she does not have earned income in the same way that it can be done for a Traditional IRA, so long as the individual does not contribute above the contribution limits and the total contributions of the couple do not exceed total earned income

Sources:
https://www.horizontrust.com/ira-retirement-plan-contribution-limits-and-changes/
https://www.whitecoatinvestor.com/retirement-plan-contribution-limits/

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