Instructions for Deducting an IRA on Form 1040

Contributing to an individual retirement account has a couple of benefits. Not only are you saving money toward your retirement, you also get tax advantages. You can use the money in your IRA to buy a variety of investment products. Those investments grow tax-deferred as long a they remain in the account. If you contribute to a traditional IRA you can usually deduct that amount when you file your taxes.


There are two primary types of individual retirement account: traditional IRAs and Roth IRAs. Both types have significant, but different, tax advantages. The main difference involves when your money is taxed as income. Traditional IRA contributions are typically made with pre-tax dollars, and are taxed as ordinary income when you withdraw funds. Roth IRA contributions are made with after-tax dollars, and qualified withdrawals are free from federal income taxes. You can't deduct contributions to your Roth IRA. Only contributions to a traditional IRA are tax deductible on Form 1040.

Maximum Contributions

The government wants to encourage you to save toward your retirement by giving you some tax breaks for contributing to an IRA, but Uncle Sam is not willing to give away the farm. There are limits to how much you can contribute, although those limits have changed over the years. For the 2012 tax year, the maximum you can contribute to a traditional IRA is $5,000 if you are under 50 years old, or $6,000 if you are 50 or older. You can't contribute more than 100 percent of your earned income.

Deduction Reduction

The percentage of your IRA contributions that are tax deductible on Form 1040 depends on your filing status, your modified adjusted gross income and whether you or your spouse are covered by a retirement plan at work. If your modified AGI exceeds certain limits, your deduction will be reduced or eliminated. For example, if you are single and not covered by a retirement plan at work, you can deduct 100 percent of your contribution regardless of your modified AGI, as of the 2012 tax year. If you are covered by a retirement plan at work, and you are married filing a joint return with a modified AGI of more than $112,000, you cannot take a deduction for your IRA contributions. If you are covered by a retirement plan and file as head of household your deduction will be reduced if your modified AGI is between $58,000 and $68,000. If you are married and file separately, and your modified AGI is at least $10,000, you can't take any deduction for your IRA contributions.


Report the deductible amount of your traditional IRA contributions as an adjustment to income on Line 32 of Form 1040. Add the amount of your IRA contribution to your other adjustments to income on Lines 23 through 35, and report the results on Line 36. Subtract the amount on Line 36 from your total income on Line 22. Enter the result on Line 37. This is your adjusted gross income.

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Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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