IRA Deductions
The traditional Individual Retirement Account (IRA) contribution and deduction limit is still $5,000 for 2011. If you are at least age 50 or older before the end of 2011, the limits are still increased to $6,000.
Also, like last year your IRA deduction does not include any part of a tax-free rollover to your IRA account. You also must have at least $5,000 or $6,000 in taxable compensation to be able to contribute the maximum amounts. Taxable compensation can be salary, wages, commissions, alimony payments and self-employment income.
It does not include things like interest and dividend income; rental income: social security income; and pension or annuity income. Self-employment income is the net self-employment income after deducting business expenses -- not the gross revenue from the business.
Even though you may legally contribute to your IRA, your income must not be over certain amounts in order to deduct the entire amount on your 2010 Federal Income Tax Return. Income for these purposes is defined as Modified Adjusted Gross Income.
■ If you and your spouse; or if you are single; or if you claim head of household status and were not covered by a retirement plan at your work, there are no income restrictions. Your entire IRA contribution is tax deductible.
■ If both you and your spouse are covered by a retirement plan, your IRA deduction will be phased-out if you make more than $89,000 on a joint tax return. If you make $109,000 or more on a joint tax return, you receive no IRA deduction.
■ If one spouse is covered by a retirement plan and the other is not covered by a retirement plan, your IRA deduction is not reduced until your income exceeds $167,000. At $177,000, your IRA deduction is completely phased out.
■ If you are single or claim head of household status and are covered by a retirement plan, your IRA deduction is reduced when your income exceeds $56,000 and completely eliminated when you hit $66,000.
For 2011 the above income limits have been changed as follows: The $89,000 amount is raised to $90,000 and the $109,000 amount is raised to $110,000. The $167,000 amount has been increased to $169,000 and the $177,000 amount has been increased to $179,000.
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