How to Make Deductible Contributions to a Rollover IRA

A rollover IRA is created upon completing a tax-free rollover of cash or investments from another retirement account, such as one provided by a previous employer. This transaction creates a rollover contribution to a traditional IRA. Even if you opened the IRA strictly to execute the rollover contribution, you can still use the account for making further cash contributions. Tax deduction for the contributions depends upon verifying your eligibility.

Step 1

Verify that you are allowed to contribute the amount you plan to deposit in your rollover IRA. You or your spouse must have at least that amount of taxable compensation from wages or self-employment, plus you must be under age 70½.

Step 2

Examine your Form W-2 from your employer to determine if you are covered by a retirement plan at work. The “Retirement Plan” box is checked if you are covered. Conduct the same examination of your spouse’s W-2.

Step 3

Calculate your modified adjusted gross income, or MAGI. This is usually the same as the line on your tax return for “adjusted gross income,” but it adds any amounts for student loan interest deduction, tuition and fees deduction, domestic production activities deduction, foreign earned income or foreign housing exclusion, and foreign housing deduction, as well as any savings bond interest or employer-provided adoption benefits excluded from income.

Step 4

Refer to the tables on page 13 of Internal Revenue Service Publication 590 if you or your spouse is covered by an employer retirement plan. Your deduction for an IRA contribution is limited if your MAGI on the tables indicates a reduction or elimination is required.

Step 5

Send a check or money order to the financial institution holding your rollover IRA. You must make your contribution with cash rather than investments.

Items you will need

  • IRS publication 590

Tip

  • Even when you are not entitled to a tax deduction for your IRA contribution, you are still permitted to contribute to a rollover IRA up to the annual limit. For 2012, the annual limit was your taxable compensation, up to $5,000. This is increased to $6,000 if you are at least age 50 by the last day of the year.

Photo Credits

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About the Author

Brian Huber has been a writer since 1981, primarily composing literature for businesses that convey information to customers, shareholders and lenders. Huber has written about various financial, accounting and tax matters and his published articles have appeared on various websites. He has a Bachelor of Arts in economics from the University of Texas at Austin.

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