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Traditional IRA

Last Updated October 18, 2012

Definition

An individual is eligible to take a tax deduction for contributions made to his/her traditional IRA, if he/she is not an active participant, nor married to someone who is an active participant.

If an individual is an active participant and/or married to someone who is an active participant, his/her eligibility to take a tax deduction for the traditional IRA contribution is determined by his/her modified adjusted gross income (MAGI) and tax filing status. The MAGI limits can be found here under the definition of IRA

An individual who is eligible to claim a tax deduction for his/her traditional IRA contribution may choose to treat the contribution as nondeductible, if he/she so wishes to do.  IRS Form 8606 is required to be filed to report any nondeductible contributions made to a traditional IRA. This helps the IRA owner and the IRS keep track of these amounts, so that they are not taxed when distributed from the IRA.

 

Referring Cite

IRC § 408 (a), IRS Publication 590

Additional Helpful Information

Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.

    • An individual can split the annual limit between a traditional and a Roth IRA, or contribute the entire amount to either. However, MAGI limitations apply to Roth IRA contributions.
    • IRA contributions must be made in cash