- Can I Withdraw Converted Funds From My Roth IRA Penalty Free?
- Where Do I Report a 5498-ESA Education IRA on My Taxes?
- Are Funds Taken From an IRA Taxed at the Same Rate As Regular Income?
- Can I Pay My Insurance Premiums From My HSA?
- How Much Money Can I Withdraw From My IRA Monthly?
- When Can I Withdraw From My IRA Without Penalties?
Individual retirement accounts offer an additional way to save money for retirement on top of employer-sponsored retirement plans. All IRAs offer tax-sheltered growth, so you won't pay taxes on the income in the account. However, contributing to an IRA won't always decrease your income taxes.
Roth IRA Contributions
Roth IRA contributions are never deductible regardless of where you get the money to contribute. Instead of offering a deduction for contributions, Roths allow you to take qualified distributions fully tax-free -- including any earnings in the plan. For example, if you put in $5,000 today, you won't get a tax deduction. But, if it grows to $10,000 by the time you take out a qualified distribution, the entire $10,000 comes out tax-free.
Traditional IRA Contributions
Traditional IRA contributions are generally deductible from your taxes, assuming you're eligible to contribute. To be eligible, you must be under 70 1/2 years old at the end of the year and have compensation. The deduction is an adjustment to income, so you can claim the write-off even if you aren't going to itemize your deductions. However, you might not be allowed to deduct your traditional IRA contributions if you're covered by an employer plan and your income is too high.
Employer Plan Coverage
You might be covered by an employer plan even if you didn't put any money in the account yourself. For defined contribution and IRA-based employer plans, you're covered if either you or your employer contributes money on your behalf. For example, if your employer puts money in your SIMPLE IRA, you're considered covered even if you don't contribute any money to the plan. For a defined benefit plan such as a traditional pension, you're covered if you're eligible to participate.
The income limits for deducting your traditional IRA contribution vary depending on your filing status and whether you're covered or your spouse is covered. The limits also include a phaseout range, which reduces your deduction if you fall in it rather than completely eliminating it. For example, say you're single and covered by an employer plan in 2013. If your modified adjusted gross income falls between $59,000 and $69,000, your maximum traditional IRA deduction is lowered. If your MAGI exceeds $69,000, you can't deduct any of your contribution.