Are IRA Contributions Tax Deductible?
Are you looking for a potential tax deduction for this past year or to potentially lower your taxes in the future?
If so, certain retirement account contribution(s) may qualify for a tax deduction if you meet IRS eligibility requirements.
The ability to receive a tax deduction on IRA contributions depends on a variety of factors, including: the type of account, whether you’re covered by an employer-sponsored retirement plan, and your income.
If you’re married and file jointly and whether your spouse is covered by an employer-sponsored retirement plan are also factors.
The IRS requirements for 2019 tax deduction eligibility on Traditional IRA contributions are outlined in more detail below. The deadline to contribute for 2019 is the July 15 tax filing deadline.
Also outlined are several other tax-deferred accounts with the potential for tax-deductible contributions.
Please note: 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.
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.
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.
2019 Traditional IRA Deduction Limits – If You Are Covered by a Retirement Plan at Work
|Single or head of household||$64,000 or less||A full deduction up to the amount of your contribution limit|
|Between $64,000 and $74,000||A partial deduction|
|$74,000 or more||No deduction|
|Married filing jointly or qualifying widow(er)||$103,000 or less||A full deduction up to the amount of your contribution limit|
|Between $103,000 and $123,000||A partial deduction|
|$123,000 or more||No deduction|
|Married filing separately||Less than $10,000||A partial deduction|
|$10,000 or more||No deduction|
2019 IRA Deduction Limits – If You Are Not Covered by a Retirement Plan at Work
|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||$193,000 or less||A full deduction up to the amount of your contribution limit|
|Between $193,000 and $203,000||A partial deduction|
|$199,000 or more||No deduction|
|Married filing separately with a spouse who is covered by a plan at work||Less than $10,000||A partial deduction|
|$10,000 or more||No deduction|
Those seeking potential tax deductions for 2019 have until the (extended) July 15 tax filing deadline to make a contribution.
The contribution deadline for 2020 contributions is April 15, 2021. Review the 2019-2020 contribution and deduction limits here or visit the IRS website.
Account Options for Individuals Seeking Potential Tax Deductions
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.
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 Senior Account Executive 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.
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%) 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.
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 2019 tax year passed on December 31, 2019.
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.
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.
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.
Equity Trust is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.
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