2008 IRA Deduction

The phaseout begins at 85K AGI, ends at $105K. At 87K, you can take 90% of the $5000 limit or $4500. So, that's my longwinded way to say "all of it", while offering a hint how I got my answer. Make sense?

Joe

Hello,

thanks for the quick reply. Someone told me

The deductibility limits always apply to the actual contribution, not the max allowed. The $5000 amount in the analysis is irrelevant. For example, if he had only contributed $100, then $10 would not be deductible. IRA Contribution and Deductability, there are two parts:

a- how much CAN be contributed? b- how much of THE CONTRIBUTION can be deducted?

So I was told that $2,700 would be deductible, not the full $3,000.

Thanks, Alpesh

I understand. Respectfully, that person was wrong. There's a number that answers the question "If I only want to deposit to my IRA what's fully deductible, how much, in my situation?" (and I answered for you) The math your person suggested implies no answer suffices. Joe

Alpesh, I believe Joe, as usual, has done his homework. Whether or not you contribute the maximum, the percentage is computed as if you had made the maximum contribution. See below. Excerpted from the IRS website at

The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2008.

Example 1.

For 2008, Tom and Betty file a joint return on Form 1040. They are both 39 years old. They are both employed and Tom is covered by his employer's retirement plan. Tom's salary is $57,000 and Betty's is $30,555. They each have a traditional IRA and their combined modified AGI, which includes $2,000 interest and dividend income, is $89,555. Because their modified AGI is between $85,000 and $105,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan .

For 2008, Tom contributed $5,000 to his IRA and Betty contributed $5,000 to hers. Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them.

Tom can take a deduction of only $3,870.

He can choose to treat the $3,870 as either deductible or nondeductible contributions. He can either leave the $1,130 ($5,000 ? $3,870) of nondeductible contributions in his IRA or withdraw them by April 15, 2009. He decides to treat the $3,870 as deductible contributions and leave the $1,130 of nondeductible contributions in his IRA.