Yes, IRA contributions are tax-deductible if you qualify. To be clear, we're talking about contributions to a traditional IRA. Contributions to a Roth IRA are not tax-deductible. If you're looking for the best company to rollover your IRA to gold, here's how to find out if you're eligible to deduct your traditional IRA contributions. Non-deductible IRAs are subject to the same annual contribution limit as other IRAs.
However, your contributions to a non-deductible IRA are made with after-tax money, while your contributions to a traditional IRA or 401 (k) can be deducted in the year in which they are made. To calculate how much you can deduct from your traditional IRA contribution if your MAGI falls within the phase-out range, you need to know the upper and lower limits of the phase-out range, your MAGI, and your maximum IRA contribution for the year. If you don't qualify to contribute to tax-advantaged retirement accounts because of your (or your spouse's) income, contributing to a non-deductible IRA provides a convenient way to save and increase your money tax-free until your income is withdrawn when you retire. If you or your spouse are eligible for a workers' retirement plan and your MAGI is too high, you won't be entitled to make deductible contributions to a traditional IRA.
If you made any non-deductible contributions to your IRA, you should have filed Form 8606 along with your tax return for the year of the contribution. After solving the mystery, you'll also need to file Form 8606 to the IRS reporting non-deductible contributions. In addition, if at some point in the future you decide to convert your traditional IRA to a Roth IRA, the portion of the conversion that comes from non-deductible contributions can be converted tax-free. In addition, regardless of your participation in a work plan, income that exceeds a certain threshold makes you ineligible at all to contribute to a Roth IRA.
You may be able to request a deduction on your individual federal income tax return for the amount you contributed to your IRA. With a Roth IRA, the contribution isn't deductible either, but when you withdraw money in retirement, the full amount is tax-free and not just the portion that comes from non-deductible contributions. For example, even if your MAGI doesn't exceed your marital status limits, you can choose to make a non-deductible contribution to the IRA even though you have the right to deduct your contribution, which you can choose to do if you plan to convert the money into a Roth IRA in the near future. If you want to make a contribution to an IRA but can't deduct a contribution to a traditional IRA, consider making a contribution to a Roth IRA (if you qualify).
One of the best reasons to contribute to a non-deductible IRA is to take advantage of the opportunity to make clandestine contributions to a Roth IRA. Originally, people who were covered by an employer-sponsored plan, such as a 401k or 403b plan, were not allowed to contribute to an IRA at all. A deductible IRA can lower your tax bill by allowing you to deduct your contributions on your tax return; basically, you get a refund of the taxes you paid earlier in the year. While a non-deductible IRA isn't as restrictive in terms of eligibility, it also doesn't offer the same tax benefits as a traditional or Roth IRA.