Tax Deduction Consulting: IRA Deduction Limits Cody WY
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Tax Deduction Consulting: IRA Deduction Limits
Deduction Limits in an IRA
The deduction limits in an IRA are subject to change each year. The current amounts and the projected deductions for upcoming years can be found in IRS Publication 590.
The Internal Revenue Service's Publication 590, Individual Retirement Arrangements, gives all the information for the deduction limits in an IRA. The publication also gives the pertinent information on setting up the account and explains the differences between a Roth IRA and a traditional IRA. The amount of your personal deduction is limited by two factors. There are deduction limits in an IRA that are based on your adjusted gross income (AGI) as well as a limit to the total amount of your contributions.
The deduction limits in an IRA use the phase out method where the deduction begins at gradually reduction at a certain income level and is gradually reduced until it reaches zero. In 2007, the phase out begins at $83,000 and continues to $103,000 for a married couple filing a joint return. The phase out amount begins at $52,000 and ends at $62,000 for single taxpayers or Head of Household status. These limits apply to persons who have a traditional IRA at their place of employment.
In the case of a taxpayer who is living with their spouse and filing jointly and it is the spouse that is covered by an IRA at their place of employment, but you are not, the phase out limit begins at $156,000 and ends at $166,000. For 2007, if your AGI exceeds $166,000, you are unable to take any deduction for contributions to your IRA.
Individual Retirement Accounts, or Arrangements, serve two major purposes. They provide a way to save for retirement. This is their primary purpose. The secondary purpose is to provide a bit of current tax relief for lower income workers. The fact that contributions are deductible is one method this is accomplished. The interest earned on IRA accounts is also exempt from taxation during the year it is earned although it will be taxed when the funds...