Your ability to contribute to a Roth IRA or deduct contributions to a traditional individual retirement account depends on a few factors. While income is one, eligibility for participation or deduction of contributions also depends on a separate calculation called modified adjusted gross income. Eligibility for making deductible contributions to a traditional IRA also depends on whether you are covered by a 401(k) or other retirement plan at work. As of 2012, the maximum contribution you can make to either type of IRA is $5,000, or $6,000 if you are age 50 and over.
Modified Adjusted Gross Income
MAGI is all of your income from wages, interest, self-employment and any other source, minus adjustments the Internal Revenue Service allows. These adjustments include educator expenses, health savings account deductions and IRA contributions. Your adjusted gross income is listed on Form 1040, line 37. Modify this number by adding back in student loan interest, tuitions and credits, employer-funded adoption benefits and some foreign tax adjustments to arrive at your MAGI.
Traditional IRA: Married
If you and your spouse are not covered by a workplace retirement plan, you are able to claim a deduction for your traditional IRA contribution regardless of MAGI. If you are covered by a workplace plan, married joint filers must have less than $92,000 in MAGI to claim the full allowable deduction. If your spouse is covered by a workplace plan but you are not, you can claim the full allowable deduction with MAGI up to $173,000. If you are married filing separately and you lived with your spouse part of the year, you can claim a partial deduction if your MAGI is less than $10,000.
Traditional IRA: Single
Single taxpayers can claim the full allowable IRA deduction with MAGI amounts of less than $58,000 when covered by a workplace plan. If you are not covered by a workplace plan, your deduction is not limited based on MAGI. If you are a married person filing separately, the single limits apply if you lived apart from your spouse all year.
Eligibility for a Roth IRA does not depend on participation in a workplace plan, but it still depends on your MAGI amount. If you are married filing a joint return, you can make a full Roth IRA contribution if your MAGI is less than $173,000. Single and head-of-household filers must have MAGI of less than $110,000. Married people filing separately who lived together for part of the year make a reduced contribution to a Roth IRA as long as their MAGI is less than $10,000. If a married person filing separately lived apart from his spouse, he may use the single limits.
You can make a nondeductible contribution to a Roth IRA regardless of your MAGI levels or if you participate in an employer plan, as long as you have earned income. Your contribution to the IRA cannot exceed the amount of your earned income. Nondeductible IRA contributions do not offer an immediate tax benefit, but the earnings will still grow tax-deferred until you withdraw them at retirement.