Deductible IRA Contributions
Everyone is eligible to establish and maintain an IRA, but whether your contributions into the IRA this year will be deductible depends on your (or, if married, you and your spouse's) income level and whether or not you are covered by another pension plan at work.
If neither you nor your spouse is covered under another retirement plan, you may both take full advantage of the tax deduction for the amount contributed, regardless of your income level.
If the individual making the contribution is covered under another retirement plan, the amount of the contribution eligible for deduction is determined by the filing status and adjusted gross income (AGI) of the couple, as shown on Line 36 of their Form 1040. Note that the test here is AGI - not earned income. That means that interest, dividends, capital gains, etc. are included in the total; what's more, AGI for this purpose is computed without considering the exclusion of Series EE bond interest shown on Form 8815, or the exclusion of employer-paid adoption expenses shown on Form 8839.
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2002 Maximum IRA Deduction if Covered by a Retirement Plan
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If you file a single return and AGI is no higher than:
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If you file a joint return and AGI is no higher than:
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Maximum deduction is lesser of 100% of compensation or
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| $34,000 |
$54,000 |
$3,000 |
| $35,000 |
$55,000 |
$2,700 |
| $36,000 |
$56,000 |
$2,400 |
| $37,000 |
$57,000 |
$2,100 |
| $38,000 |
$58,000 |
$1,800 |
| $39,000 |
$59,000 |
$1,500 |
| $40,000 |
$60,000 |
$1,200 |
| $41,000 |
$61,000 |
$ 900 |
| $42,000 |
$62,000 |
$ 600 |
| $43,000 |
$63,000 |
$ 300 |
| $44,000 |
$64,000 |
$ 0 |
The table above shows the limits that apply for 2002. These dollar amounts are scheduled to increase in the future. For both single and joint returns, the phaseout will increase by $6,000 in 2003, and then by $5,000 per year for the next three years. Ultimately, in 2007 the phaseout range for joint returns will be $80,000 to $100,000, and the range for singles will be $50,000 to $60,000.
AGI limits when only one spouse is covered. If the individual making the contribution is not covered by another retirement plan at work, but his or her spouse is covered by such a plan, the non-covered individual may make deductible contributions to an IRA. The AGI phase-out range for such contributions is $150,000 to $160,000, as shown on the following chart.
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Maximum Contribution When One Spouse is Covered by a Retirement Plan
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If you file a joint return and AGI is no higher than:
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Maximum deduction is lesser of 100% of compensation or
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| $150,000 |
$3,000 |
| $151,000 |
$2,700 |
| $152,000 |
$2,400 |
| $153,000 |
$2,100 |
| $154,000 |
$1,800 |
| $155,000 |
$1,500 |
| $156,000 |
$1,200 |
| $157,000 |
$ 900 |
| $158,000 |
$ 600 |
| $159,000 |
$ 300 |
| $160,000 |
$ 0 |
If your contribution to an IRA is deductible, you don't need to file any special form to claim it, nor do you need to itemize deductions on Schedule A. Simply write the amount of your contribution (and your spouse's contribution, if married filing jointly) on Line 24 of Form 1040, or Line 17 of Form 1040A.
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