On February 20 2015 Charles who is single and age 32 establi

On February 20, 2015, Charles, who is single and age 32, establishes a traditional deductible IRA and contributes $5,500 to the account. Charles’ AGI is $66,000 in 2014 and $57,000 in 2015. Charles is an active participant in his employer’s retirement plan.

a) What amount of the contribution is deductible? In what year is it deductible?

b) Is the deduction For AGI or From AGI?

c) How would your answer to part (a) change, if at all, if Charles were not an active participant in his employer’s retirement plan?

d) How would your answer to part (a) change if Charles were married and filed a joint return with his spouse, who has no earned income, assuming their combined AGI is $85,000? What would be their maximum IRA contribution deduction? Please explain why, don\'t just copy someone elses post!

Solution

ans A as per the rules on IRA deductions if the individual income is less than $61000, he shall be entittled for full deduction of the contribution made upto $5500.If it exceeds $61000 but less than $71000 partial deduction is allowed.

So amount of contriution is deductible is $5500 for year 2015 as the AGI is $57000.As he has contributed in 2015.

Ans b The deduction is from AGI because the deduction amount limit is calculated after calculating AGI

Ans c If charles is not active participant than whatever he contributes is allowed as deduction. So here also $5500 is allowed.

Ans d Again they are allowed to a deduction of $5500 because their combine AGI does not exceed $98000.