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IRA Deductions – Must Knows For 2017


If you recently filed your taxes, you are well aware that line item 32 on the 1040 tax form is “IRA Deductions”. Stay ahead of next year’s deadline by keeping up with new rules and guidelines.

Let’s first take a look at the two most common IRA types, the Traditional IRA and Roth IRA.

What is a Traditional IRA?

IRA stands for individual retirement arrangement and the traditional IRA was established in the U.S. by the 1974 Employee Retirement Income Security Act. One great feature of the traditional IRA and the reason it is a popular choice among those investing in a retirement fund is the ability to make tax deductible contributions. Not only that, but the contributions won’t be taxed until the money is withdrawn, sometimes many years later.

What is a Roth IRA?

A Roth IRA is an individual retirement arrangement retirement plan. It is not taxable if guidelines are followed. A Roth retirement plan may contain many types of investments including investments in security, stocks bonds, mutual funds, certificates of deposit and more. People who choose a Roth IRA often do so because of its tax structure advantage and the flexibility on the investments you can make.

What is the Difference? 

A traditional IRA is tax deductible for both federal and state returns and the deduction is applicable for the year you contribute. If you make a withdrawal during the year on a traditional IRA however, you must pay taxes on it. The Roth IRA is just the opposite. There are no tax breaks for your yearly contributions, however earnings and withdrawals are often tax-free.

New Deduction Limits for 2017

The 2017 contribution limit information and full information about changes for both Roth IRAs and traditional IRAs can be found in IRS Publication 590-A. Here are some major changes for 2017:

  • Modified AGI limit for traditional IRA contribution increased. For married couples filing jointly or a qualifying widow(er), the deduction is reduced or phased out if you make more than 99,000 but less than $119,000; for a single individual or head of household more than $62,000 but less than $72,000. If your modified AGI is $196,000 or more you cannot take a deduction for contributions.
  • Modified AGI limit for Roth IRA contributions increased. The Roth IRA contribution is reduced (phased out) for married joint filers or a qualifying widow(er) and the modified AGI is at least $186,000. If you modified AGI if $196,000 or more, you cannot make a Roth IRA contribution. The same applies to single filers, heads or household, or a married individual filing separately, who did not live with a spouse at any time in 2017 and has a modified AGI of at least $118,000. If the modified AGI is $133,000 or more you cannot make a Roth IRA contribution.

From the IRS website, you can track any legislative changes related to Pub. 590-A here.

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