I must be doing something wrong. A client inquired about how much of an IRA deduction he can take if he's covered by a 401(k) plan at work. All over the IRS website it says that up to a certain income you get a full deduction, over another income you get no deduction, but in between those you get a "partial deduction."
But nowhere can I find any guidance on how to calculate that partial deduction.
What am I missing?
Thanks.
The way I understand it, Publication 590-A covers this. For your example use Worksheet 1-2 (Page 17 of the 2018 Pub 590-A pdf).
I had checked out Publication 590-A, but didn't find any information on how the number is calculated. Perhaps just doing the worksheet does the job.
While the 2018 Pub 590-A appears to be the latest version available, the income thresholds in the worksheet are for 2018 returns. The "IRA Deduction Worksheet" (page 88 of the 2019 1040 instructions pdf) uses the income thresholds for 2019.
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Example (from me) - Single. The phaseout range is from $65K to $75K MAGI, for a deposit of $6000. The fraction client is into that range is the fraction that cannot be deducted. $67K - they are 20% into the 10K range, they get 80% or $4800 they can still deduct.
Note, years ago, when I first played with this, the Tax SW used $50 step function, so instead of calculating to the dollar, the next $1 of MAGI might trip one into 'not' being able to deduct the next $50 of IRA money. I don't know if they've updated to use a smooth line now, it was very long ago.
Thanks Joe - that even makes sense. And for something dealing with taxes that's unusual!
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