Are you looking for a tax deduction for this past year or to potentially lower your taxes in the future?
If so, certain retirement account contributions may qualify for a tax deduction if you meet IRS eligibility requirements.
Are you able to receive a tax deduction on IRA contributions?
Whether you receive a tax deduction on an IRA contribution depends on a variety of factors including the type of account, whether you’re covered by an employer-sponsored retirement plan, and your income.
Other factors that affect your potential tax deduction include:
If you’re married and file jointly
Whether your spouse is covered by an employer-sponsored retirement plan
The IRS requirements for 2023 tax deduction eligibility on Traditional IRA contributions are outlined in more detail below. The deadline to contribute for 2023 is the April 15, 2024 tax filing deadline.
Are Roth IRAs tax-deductible?
If you have a Roth IRA, contributions are not tax-deductible and are considered “after-tax” contributions. But, due to the tax treatment of Roth accounts, investments and withdrawals are tax-free after certain IRS requirements are met.
Other tax-deductible accounts
Outlined below are several other tax-deferred accounts with the potential for tax-deductible contributions.
Traditional IRA Tax Deduction Eligibility Overview
Employer-Sponsored Retirement Plan
If you are not covered by a retirement plan at work, your contribution is deductible in full. If you (or your spouse if filing jointly) are covered by a retirement plan at work, your deduction may be limited based on your income.
Income
If you are covered by a retirement plan at your place of work, your Modified Adjusted Gross Income (MAGI) will affect the amount you are eligible to deduct.
2023 Traditional IRA Deduction Limits – If You Are Covered by a Retirement Plan at Work
Filing Status
MAGI
Deduction
Single or head of household
$73,000 or less
A full deduction up to the amount of your contribution limit
Between $73,000 and $83,000
A partial deduction
$83,000 or more
No deduction
Married filing jointly or qualifying widow(er)
$116,000 or less
A full deduction up to the amount of your contribution limit
Between $116,000 and $136,000
A partial deduction
$136,000 or more
No deduction
Married filing separately
Less than $10,000
A partial deduction
$10,000 or more
No deduction
2023 IRA Deduction Limits – If You Are Not Covered by a Retirement Plan at Work
Filing Status
MAGI
Deduction
Single, head of household, or qualifying widow(er)
Any amount/no limit
A full deduction up to the amount of your contribution limit
Married filing jointly, or separately with a spouse who is not covered by a plan at work
Any amount/no limit
A full deduction up to the amount of your contribution limit
Married filing jointly with a spouse who is covered by a plan at work
$218,000 or less
A full deduction up to the amount of your contribution limit
Between $218,000 and $228,000
A partial deduction
$228,000 or more
No deduction
Married filing separately with a spouse who is covered by a plan at work
Contributions to a Traditional IRA may be deductible up to the contribution limit, if you qualify per the eligibility requirements outlined above.
Contributions to a Traditional IRA are generally made with pre-tax dollars, investments within the IRA grow tax-deferred, and taxes are paid on the money/earnings when withdrawn.
Video: John Bowens explains why tax deductions aren’t the only tax benefits to consider when thinking about retirement accounts.
Compared to Traditional IRAs, Health Savings Accounts are an often overlooked source of potential tax deductions.
Contributions to an HSA are tax deductible, even if you don’t itemize your deductions, as long as the contributions were not made by an employer.
Potential tax deductions are just one of the “triple tax benefits,” so if you are looking for tax deductions for this past year and have a high deductible health plan, consider opening and contributing to an HSA.
Account Options for Business Owners Seeking Potential Tax Deductions
If you own a business, you may be eligible for retirement plans with potentially larger contribution and deduction limits, in addition to an IRA and/or HSA.
Schedule a consultation with an Equity Trust IRA Counselor to discuss account options for your business.
As with all our accounts, our small business plans have the freedom to invest beyond the stock market, including alternative assets such as real estate, notes/private debt, private equity, and more.
If you are self-employed or own a business with up to 25 employees, you may be eligible to establish a SEP IRA.
Employer contributions to a SEP IRA are generally tax deductible, subject to certain requirements and annual limits.
According to the IRS, the most you can deduct on your business’s tax return for SEP IRA contributions is the lesser of 25 percent of employee compensation or the annual contribution limit.
If you are self-employed and contribute to your own SEP-IRA, there is a specific computation to determine the maximum deduction.[1]
The SIMPLE is an incentive-match plan designed for small businesses, generally with 100 or fewer employees, who have no other qualified plans.
Employers contribute a percent-based salary match (1-3 percent) and employees may elect to contribute through salary deferral.
As the employer, you may deduct contributions made to employees’ SIMPLE IRAs on your business tax return. However, employee participants cannot deduct contributions to their SIMPLE IRA.[2]
A Solo 401(k) combines elements of the SEP and SIMPLE accounts.
It provides business owners the opportunity to contribute as both the employer and employee with potentially higher contribution and deduction limits.
Designed for owner-only businesses, a Solo 401(k) can be established by both incorporated and unincorporated businesses, sole proprietors, partnerships, and corporations.
The only employees must be self-employed partners and their spouses. Contribution deadlines for a Solo 401(k) are the last day of the calendar year.
Therefore, unlike other accounts, the contribution deadline for those seeking potential tax deductions for the 2023 tax year passed on December 31, 2023.[3]
Self-Directing Your Tax-Deductible Accounts
With a self-directed IRA custodian such as Equity Trust, individuals and business owners have the opportunity to invest in alternatives outside of traditional assets like stocks, bonds, and mutual funds.
Whether you have experience in real estate, private equity, precious metals, or cryptocurrency, it’s possible to build wealth for retirement by investing in what you know best with your tax-advantaged account(s).
What are your plans for reducing your tax burden now and in the future?
Schedule a consultation with an Equity Trust Account Executive to discuss your tax-advantaged account options for you or your business.
1
Can I roll over a 401(k) account into a self-directed IRA?
Yes. A self-directed IRA gives you the ability to diversify your portfolio with additional investments that are permitted by the IRS, in a tax-free or tax-deferred environment.
2
Am I eligible to make a contribution? How much can I contribute?
The IRS publishes maximum IRA contribution limits and catch up provisions each year. Summaries for each type of contribution can be found on Contribution Limits.
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