IRA deductibility

Submitted by Robert Roselli on Thu, 2022-10-20 14:33

I have a couple of questions about IRA deductibility.

1) Single person with $ 80,000 wages (this is his FICA wages – 401K contributions), an active participant in a plan.
For 2022, the deductibility range is $ 68,000 – 78,000. If the person wants to contribute $ 6,000, is it partially deductible? I am asking because after the $ 6,000 is deducted, they will be at $ 74,000. Does the IRS look at where you are before or after you make the contribution, so do they look at $ 80,000 or $ 74,000?

2) Assume the same facts, except the person has a SEP IRA instead of a 401k. Are the results the same or would the person be able to deduct the IRA contribution also?



Submitted by David Mertz on Thu, 2022-10-20 15:46

  1. Deductibility of a traditional IRA contribution is based on AGI without taking into account any deduction for a traditional IRA contribution.  In this example it’s based on $80,000, not $74,000.  See Worksheet 1-1 in IRS Pub 590A.
  2. A SEP IRA and a 401(k) are both defined contribution retirement plans, so participation in either in the taxable year makes the individual a covered individual.  See “For Which Year(s) Are You Covered?” in IRS Pub 590A.


Submitted by Robert Roselli on Thu, 2022-10-20 17:17

Thanks for the prompt response. I have tax planning software. If we keep the same facts, but the client does a tax loss harvest for $ 3,000, it brings their AGI down to $ 77,000 and they get a $ 600 deduction 1/10 of the allowable being at the top of the $ 68-78k phaseout.



Submitted by David Mertz on Thu, 2022-10-20 18:24

Correct.  In that case only up to $600 could be claimed as an IRA deduction with the rest of any IRA contribution being reported on line 1 of Form 8606.



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