A. It depends. First, this does not apply to Roth IRAs; they have different rules. But, for a Traditional IRA, it depends mostly on the amount of taxable compensation you earned in that tax year and whether or not you, or your spouse if married, are an active participant in a qualified plan (click highlighted words for explanation of these terms). Assuming you, or you and your spouse jointly, earned more in taxable compensation than the maximum deductible amount for your IRA contributions, and neither of you are active participants in a qualified plan, you should be eligible to deduct the full amount of your contribution up to the maximum deductible amount.

If you or your spouse is an active participant in a qualified or employer-sponsored plan, then the amount of your contribution that is tax-deductible can be reduced depending on your AGI (adjusted gross income). For example, in 2002, single taxpayers’ deduction starts being reduced at $34,000 AGI, and no part of their contribution is deductible if their AGI is more than $44,000. For jointly filing married couples, the reduction is based on their combined AGI. For 2002, the reduction for them begins at $54,000 AGI, and no part of their contribution is deductible if they earn more than a combined AGI of $64,000.

Previous Question

Next Question