Personal Finance Questions and Answers for Young Professionals

5 Responses to “Are IRA contributions tax deductable?”

1. 
   pbucelwicz Says:
   February 13th, 2008 at 9:09 am

   This is a Roth IRA by the way. So after entering that information, it turns out that my Roth contributions were not tax deductible, but they were under state. I live in MA and I was able to deduct $2,000 off my total contribution.

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2. 
   Mario Says:
   March 10th, 2008 at 10:43 am

   Paul,
   first, congrats dude in making a really smart decision. Contributing to an IRA is a great way to take advantage of tax cuts and get a great start on your retirement. So a Roth is NOT tax deductible (at least Federally speaking). Only traditional IRA is, which eventhough is contributed with after tax money, it is “payed back” with a tax
   break/tax credit if u will, which reduces ur gross income and hopefully brings u to a lower tax bracket. The max gross income to qualify for a full “tax credit” is for a single person something like 95k or slightly more…. even if u earn more, u can still contribute to a trad ira and either get partial credit on ur taxes or none…(and just pay out if ur pocket). The Roth doesnt qualify u neccessarily for a tax bracket BUT allows u to contribute to it if u earn less than 95k or so as well)…
   so in essence…here’s the deal:

   Traditional IRA Profile
   Tax deductible contributions (depending on income level)
   Withdraws begin at age 59 1/2 and are mandatory by 70 1/2.
   Taxes are paid on earnings when withdrawn from the IRA
   Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
   Available to everyone; no income restrictions
   All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (subject to exception).

   Roth IRA Profile
   Contributions are not tax deductible
   No Mandatory Distribution Age
   All earnings and principal are 100% tax free if rules and regulations are followed
   Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
   Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.
   Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

   I hope this clears it for u.

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3. 
   Mario Says:
   March 10th, 2008 at 11:04 am

   by the way…as you might have noticed..

   Traditional IRA Profile
   ***Tax deductible contributions (depending on income level)***
   this is where i mentioned….i think up to slightly around 95k to 105k for single filers… i believe…. if u make more…u can still contribute…. u just wont get the tax credit…

   ***Available to everyone; no income restrictions*** and this is one of the 2 major differences between traditional to ROth…. one diff…even if i made 1 million dollars….i could still contribute the max of 5000 (for 2008) and just wouldnt get tax credit….but could not contribute to a roth… because i earned more than the 95k limit. And of course the other difference is the tax deferred to tax free upon retirement.

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4. 
   pbucelwicz Says:
   March 17th, 2008 at 7:36 am

   Thanks Mario. That clears things up.

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5. 
   Mario Says:
   March 20th, 2008 at 11:18 am

   Also, dont forget to fill out a 8606 form with the IRS if u keep making contributions to a trad ira and are over the max gross income limit.

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