Deductible IRA Contributions

The amount, which an individual can contribute to an IRA and then deduct, on his or her income tax return cannot exceed the lesser of $2,000, or total compensation each year. For a married couple filing a joint return, where only one spouse is employed (or where one spouse earns less than $2,000), the contribution is limited to the lesser of $4,000 (a maximum of $2,000 each to separate accounts) or their combined annual compensation. The contributions on be half of the non-employed (or lesser earning) spouse are made to an account called a "spousal" IRA account.

The $2,000/$4,000 limits assume no contributions to a Roth IRA. The contribution limits for both a traditional IRA and a Roth IRA are coordinated: a taxpayer may not contribute more than $2,000 ($4,000 spousal) per year into a single IRA or combination of IRAs. Excess contributions are subject to a 6% excise tax.

The "maximum" limit on the amount that may be deducted is restricted, however; if the individual (or spouse) is a "participant' in an employer sponsored retirement plan. If this is the case, and depending on the level of adjusted gross income (AGI) deduction way be allowed for all, none, or only a portion of an IRA contribution.

The chart below shows the traditional IRA contribution phase-out ranges for tax year 1999.
Over time, the limits will increase; reaching $50,000 - $60,000 for single taxpayers in the
year 2005 and $80,000 - $100,000 for taxpayers using married filing jointly in 2007.

Status	No Participation in a Company Retirement Plan	If Covered by a Company Retirement Plan
Single	Up to $2000 is deductible.	AGI Up to $31,000 $31,000-$41,000 Over $41,000.	IRA Deduction $2,000 Phased Out None
Married, Filing Jointly	Up to $2000 is deductible, including spousal IRAs.	AGI Up to $51,000 $51,000-$61,000 Over $61,000	IRA Deduction $2000 ($4000 Spousal) Phased Out None
Married, Filing Separate	Up to $2000 is deductible for each, if both spouses are employed.	AGI Up to $10,000 Over $10,000	IRA Deduction Phased Out None

A. Company retirement plans include pension plans, profit sharing plans, 401(k), 403(b) plans, SEP-IRAs, Keogh plans, and SIMPLE plans.
B. Generally, compensation includes wages, salaries; professional tees, net self-employment income and other amounts received for performing personal services.
C. Compensation also includes alimony received by a divorced spouse.

1. Adjusted Gross Income $ __________________
2. Less: Applicable Dollar Amount(_____________)
3. Line 1 minus Line 2 _____________
4. Deduction ______________________
    a. If line 3 is greater than $10,000, no deduction allowed.
    b. If line 3 is between $0-$10,000, subtract line 3 from $10,000.
5. Multiplication Factor: .20 _______________
    (Use .40 if Spousal IRA) _______________
6. Multiply Line 4 X Line 5 _______________
7. Round Line 6 to next Highest $10 ______________
8. Your "Compensation" for the Year ______________
9. Contributions You Plan to Make. Do not enter more than $2000 [$4000 if a spousal
    IRA]) _______________
10. Maximum deductible IRA Amount. Compare the amounts on lines
      7-9 and enter the smallest amount. ________________