Generally, you can deduct the lesser of:
- The contributions to your traditional IRA for the year,
or
- The general limit (or the spousal IRA limit, if applicable)
explained earlier under How Much Can Be Contributed?
However, if you or your spouse were covered by an employer
retirement plan, you may not be able to deduct this amount. See
Limit if Covered by Employer Plan, later.
Trustees' fees.
Trustees' administrative fees that are billed separately and paid
in connection with your traditional IRA are not deductible as IRA
contributions. However, they are deductible (if they are ordinary and
necessary) as a miscellaneous itemized deduction on Schedule A (Form
1040). The deduction is subject to the 2%-of-adjusted-gross-income
limit.
Brokers' commissions.
These commissions are part of your IRA contribution and are not
deductible as a miscellaneous itemized deduction on Schedule A (Form
1040).
Full deduction.
If neither you nor your spouse were covered for any part of the
year by an employer retirement plan, you can take a deduction for
total contributions to one or more of your traditional IRAs of up to
the lesser of:
- $2,000, or
- 100% of your compensation.
This limit is reduced by any contributions made to a 501(c)(18)
plan on your behalf.
Spousal IRA.
In the case of a married couple with unequal compensation who file
a joint return, the deduction for contributions to the traditional IRA
of the spouse with less compensation is limited to the lesser of:
- $2,000, or
- The total compensation includible in the gross income of
both spouses for the year reduced by the following two amounts.
- The IRA deduction for the year of the spouse with the
greater compensation.
- Any contributions for the year to a Roth IRA on behalf of
the spouse with the greater compensation.
This limit is reduced by any contributions to a section
501(c)(18) plan on behalf of the spouse with less compensation.
Note.
If you were divorced or legally separated (and did not remarry)
before the end of the year, you cannot deduct any contributions to
your spouse's IRA. After a divorce or legal separation, you can deduct
only the contributions to your own IRA and your deductions are subject
to the rules for single individuals.
Covered by an employer retirement plan.
If you or your spouse were covered by an employer retirement plan
at any time during the year for which contributions were made, your
deduction may be further limited. This is discussed later under
Limit if Covered by Employer Plan. Limits on the amount you
can deduct do not affect the amount that can be contributed.
Form 5498.
You should receive by June 1, 2001, Form 5498 (or a similar
statement) from the sponsor of your IRA, showing all the contributions
made to your IRA for 2000.
Are You Covered by an Employer Plan?
The Form W-2 you receive from your employer has a box used to
indicate whether you were covered for the year. The "Pension Plan"
box should be checked if you were covered.
Reservists and volunteer firefighters should also see
Situations in Which You Are Not Covered, later.
If you are not certain whether you were covered by your employer's
retirement plan, you should ask your employer.
Judges.
For purposes of the IRA deduction, federal judges are covered by an
employer plan.
Can I Take an IRA Deduction?
For Which Year(s) Are You Covered?
Special rules apply to determine the tax years for which you are
covered by an employer plan. These rules differ depending on whether
the plan is a defined contribution plan or a defined benefit plan.
Tax year.
Your tax year is the annual accounting period you use to keep
records and report income and expenses on your income tax return. For
most people, the tax year is the calendar year.
Defined contribution plan.
A defined contribution plan is a plan that provides for a separate
account for each person covered by the plan. In a defined contribution
plan, the amount to be contributed to each participant's account is
spelled out in the plan. The level of benefits actually provided to a
participant depends on the total amount contributed to that
participant's account and any earnings on those contributions. Types
of defined contribution plans include profit-sharing plans, stock
bonus plans, and money purchase pension plans.
Generally, you are covered by a defined contribution plan for a tax
year if amounts are contributed or allocated to your account for the
plan year that ends with or within that tax year. See Situations
in Which You Are Not Covered, later.
Example.
Company A has a money purchase pension plan. Its plan year is from
July 1 to June 30. The plan provides that contributions must be
allocated as of June 30. Bob, an employee, leaves Company A on
December 30, 1999. The contribution for the plan year ending on June
30, 2000, is made February 15, 2001. Because an amount is contributed
to Bob's account for the plan year, Bob is covered by the
plan for his 2000 tax year.
No vested interest.
If an amount is allocated to your account for a plan year, you are
covered by that plan even if you have no vested interest in (legal
right to) the account.
Defined benefit plan.
A defined benefit plan is any plan that is not a defined
contribution plan. In a defined benefit plan, the level of benefits to
be provided to each participant is spelled out in the plan. The plan
administrator figures the amount needed to provide those benefits and
those amounts are contributed to the plan. Defined benefit plans
include pension plans and annuity plans.
If you are eligible to participate in your employer's defined
benefit plan for the plan year that ends within your tax year, you are
covered by the plan. This rule applies even if you:
- Declined to participate in the plan,
- Did not make a required contribution, or
- Did not perform the minimum service required to accrue a
benefit for the year.
Example.
Nick, an employee of Company B, is eligible to participate in
Company B's defined benefit plan, which has a July 1 to June 30 plan
year. Nick leaves Company B on December 30, 1999. Since Nick is
eligible to participate in the plan for its year ending June 30, 2000,
he is covered by the plan for his 2000 tax year.
No vested interest.
If you accrue a benefit for a plan year, you are covered by that
plan even if you have no vested interest in (legal right to) the
accrual.
Situations in Which You Are Not Covered
Unless you are covered by another employer plan, you are not
covered by an employer plan if you are in one of the situations
described below.
Social security or railroad retirement.
Coverage under social security or railroad retirement is not
coverage under an employer retirement plan.
Benefits from previous employer's plan.
If you receive retirement benefits from a previous employer's plan,
you are not covered by that plan.
Reservists.
If the only reason you participate in a plan is because you are a
member of a reserve unit of the armed forces, you may not be covered
by the plan. You are not covered by the plan if both of the
following conditions are met.
- The plan you participate in is established for its employees
by:
- The United States,
- A state or political subdivision of a state, or
- An instrumentality of either (a) or (b) above.
- You did not serve more than 90 days on active duty during
the year (not counting duty for training).
Volunteer firefighters.
If the only reason you participate in a plan is because you are a
volunteer firefighter, you may not be covered by the plan. You are not
covered by the plan if both of the following conditions are
met.
- The plan you participate in is established for its employees
by:
- The United States,
- A state or political subdivision of a state, or
- An instrumentality of either (a) or (b) above.
- Your accrued retirement benefits at the beginning of the
year will not provide more than $1,800 per year at retirement.
Limit If Covered By Employer Plan
As discussed earlier, the deduction you can take for contributions
made to your traditional IRA depends on whether you or your spouse
were covered for any part of the year by an employer retirement plan.
Your deduction is also affected by how much income you had and by your
filing status. Your deduction may also be affected by social security
benefits you received.
Reduced or no deduction.
If either you or your spouse were covered by an employer retirement
plan, you may be entitled to only a partial (reduced) deduction or no
deduction at all, depending on your income and your filing status.
Your deduction begins to decrease (phase out) when your income
rises above a certain amount and is eliminated altogether when it
reaches a higher amount. These amounts vary depending on your filing
status.
To determine if your deduction is subject to the phaseout, you must
determine your modified adjusted gross income (AGI) and your filing
status, as explained under Deduction Phaseout. Once you
have determined your modified AGI and your filing status, you can use
Table 1.1 to determine if the phaseout applies.
Social Security Recipients
Instead of using Table 1.1 and the Worksheet For
Reduced IRA Deduction, later, complete the worksheets in
Appendix B of this publication if, for the year, all
of the following apply.
- You received social security benefits.
- You received taxable compensation.
- Contributions were made to your traditional IRA.
- You or your spouse was covered by an employer retirement
plan.
Use the worksheets in Appendix B to figure your IRA
deduction, your nondeductible contribution, and the taxable portion,
if any, of your social security benefits. Appendix B
includes an example with filled-in worksheets to assist you.
Deduction Phaseout
The amount of any reduction in the limit on your IRA deduction
(phaseout) depends on whether you or your spouse were covered by an
employer retirement plan.
If you were covered.
If you were covered by an employer retirement plan and you did not
receive any social security retirement benefits, your IRA deduction
may be reduced or eliminated entirely depending on your filing status
and modified AGI, as shown in Table A, below.
Table A
| If your filing status is: |
Your IRA deduction is reduced if your modified AGI is between: |
Your deduction is eliminated if your modified AGI is: |
| Single, or Head of household |
$32,000 and $42,000 |
$42,000 or more |
| Married--joint return, or Qualifying widow(er) |
$52,000 and $62,000 |
$62,000 or more |
| Married--separate return* |
$ 0 and $10,000 |
$10,000 or more |
*See Lived apart from spouse under Filing
status, later.
For 2001, if you are covered by a retirement plan at work, your IRA
deduction will not be reduced (phased out) unless your modified AGI is
between:
- $33,000 (a $1,000 increase) and $43,000 for a single
individual (or head of household),
- $53,000 (a $1,000 increase) and $63,000 for a married couple
filing a joint return (or a qualifying widow(er)), or
- $-0- (no increase) and $10,000 for a married
individual filing a separate return.
If your spouse is covered.
If you are not covered by an employer retirement plan, but your
spouse is, and you did not receive any social security benefits, your
IRA deduction may be reduced or eliminated entirely depending on your
filing status and modified AGI as shown in Table B next.
Table B
| If your filing status is: |
Your IRA deduction is reduced if your modified AGI is between: |
Your deduction is eliminated if your modified AGI is: |
| Married--joint return |
$150,000 and $160,000 |
$160,000 or more |
| Married--separate return* |
$ 0 and $ 10,000 |
$ 10,000 or more |
*See Lived apart from spouse below.
Filing status.
Your filing status depends primarily on your marital status. For
this purpose you need to know if your filing status is single or head
of household, married filing jointly or qualifying widow(er), or
married filing separately. If you need more information on filing
status, see Publication 501,
Exemptions, Standard Deduction, and
Filing Information.
Lived apart from spouse.
If you did not live with your spouse at any time during the year
and you file a separate return, your filing status, for this purpose,
is single.
Modified adjusted gross income (AGI).
How you figure your modified AGI depends on whether you are filing
Form 1040 or Form 1040A. If you made contributions to your IRA for
2000 and received a distribution from your IRA in 2000, see Both
contributions for 2000 and distributions in 2000, later.
Do not assume that your modified AGI is the same as your
compensation. Your modified AGI may include income in addition to your
compensation such as interest, dividends, and income from IRA
distributions.
Form 1040.
If you file Form 1040, refigure the amount on the page 1
"adjusted gross income" line without taking into account any of
the following amounts.
- IRA deduction.
- Student loan interest deduction.
- Foreign earned income exclusion.
- Foreign housing exclusion or deduction.
- Exclusion of qualified bond interest shown on Form
8815.
- Exclusion of employer-paid adoption expenses shown on Form
8839.
This is your modified AGI.
Form 1040A.
If you file Form 1040A, refigure the amount on the page 1
"adjusted gross income" line without taking into account any of
the following amounts.
- IRA deduction.
- Student loan interest deduction.
- Exclusion of qualified bond interest shown on Form
8815.
- Exclusion of employer-paid adoption expenses shown on Form
8839.
This is your modified AGI.
Income from IRA distributions.
If you received distributions in 2000 from one or more traditional
IRAs and your traditional IRAs include only deductible contributions,
the distributions are fully taxable.
Both contributions for 2000 and distributions in 2000.
If all three of the following occurred, any IRA
distributions you received in 2000 may be partly tax free and partly
taxable.
- You received distributions in 2000 from one or more
traditional IRAs - AND -
- You made contributions to a traditional IRA for 2000 -
AND -
- Some of those contributions may be nondeductible
contributions depending on whether your IRA deduction for 2000 is
reduced.
If all three of the above occurred, you must figure the taxable
part of the traditional IRA distribution before you can figure your
modified AGI. To do this, you can use the Worksheet To Figure
Taxable Part of Distribution.
If at least one of the above did not occur, figure your
modified AGI as explained earlier under either Form 1040 or
Form 1040A.
Using the worksheet.
Form 8606 and the related instructions may be helpful when using
this worksheet.
When used in the following worksheet the term outstanding
rollover refers to an amount distributed from a traditional IRA
as part of a rollover that, as of December 31, 2000, had not yet been
reinvested into another traditional IRA.
Worksheet To Figure
Taxable Part of Distribution
| Use only if you made contributions to a
traditional IRA for 2000 and have to figure the taxable part of your
2000 distributions to determine your modified AGI. See How Much
Can I Deduct?, earlier. |
| 1) |
Enter the basis in your traditional IRA(s) as
of 12/31/99 |
$ |
| 2) |
Enter the total of all contributions made to
your traditional IRAs during 2000 and all contributions made during
2001 that were for 2000, whether or not deductible. Do not
include rollover contributions properly rolled over into IRAs |
$ |
| 3) |
Add lines 1 and 2 |
$ |
| 4) |
Enter the value of ALL your traditional
IRA(s) as of
12/31/00 (include any outstanding rollovers from
traditional IRAs to other traditional IRAs) |
$ |
| 5) |
Enter the total distributions from
traditional IRAs (including amounts converted to Roth IRAs that will
be shown on line 14c of Form 8606) received in 2000. (Do not include
outstanding rollovers included on line 4 or any rollovers between
traditional IRAs completed by 12/31/00. Also, do not include certain
returned contributions described in the instructions for line 7, Part
I, of Form 8606.) |
$ |
| 6) |
Add lines 4 and 5 |
$ |
| 7) |
Divide line 3 by line 6. Enter the result as
a decimal
(to at least two places). Do not enter more than 1.00 |
|
| 8) |
Nontaxable portion of the
distribution. Multiply line
5 by line 7. Enter the result here and on line 10 of
Form 8606 |
$ |
| 9) |
Taxable portion of the distribution
(before adjustment for conversions). Subtract line 8 from line
5. Enter the result here and if there are no amounts converted to Roth
IRAs, STOP HERE and enter the result on line 13 of Form
8606 |
$ |
| 10) |
Enter the amount included on line 9 that is
allocable
to amounts converted to Roth IRAs by 12/31/00. (See
Note at the end of this worksheet.) Enter here
and on line 16 of Form 8606. |
$ |
| 11) |
Taxable portion of the distribution
(after adjustment for conversions). Subtract line 10 from line
9. Enter the result here and on line 13 of Form 8606 |
$ |
Note.
If the amount on line 5 of this worksheet includes an amount
converted to a Roth IRA by 12/31/00, you must determine the percentage
of the distribution allocable to the conversion. To figure the
percentage, divide the amount converted (from line 14c of Form 8606)
by the total distributions shown on line 5. To figure the amounts to
include on line 10 of this worksheet and on line 16, Part II of Form
8606, multiply line 9 of the worksheet by the percentage you figured.
How To Figure Your Reduced IRA Deduction
If you or your spouse is covered by an employer retirement plan and
you did not receive any social security benefits, you can figure your
reduced IRA deduction by using the Worksheet for Reduced IRA
Deduction, that follows. The instructions for both Form 1040 and
Form 1040A include similar worksheets that you can use instead of the
worksheet in this publication.
If you or your spouse is covered by an employer retirement plan,
and you did receive any social security benefits, see
Social Security Recipients, earlier.
Note.
If you were married and both you and your spouse contributed to
IRAs, figure your deduction and your spouse's deduction separately.
Worksheet for Reduced IRA Deduction
| (Use only if you or your spouse is covered by an
employer plan and your modified AGI is within the phaseout range that
applies.) |
| If you are covered and
your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Single or
Head of household |
$ 32,000 |
$ 42,000 |
| Married-joint return or
Qualifying widow(er) |
$ 52,000 |
$ 62,000 |
| Married-separate return* |
$ -0- |
$ 10,000 |
| If your spouse is covered, but you
are not, and your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Married-joint return |
$150,000 |
$160,000 |
| Married-separate return* |
$-0- |
$ 10,000 |
| *See Filing Status,
earlier. |
| 1. |
Enter the amount from above that applies |
|
| 2. |
Enter your modified AGI (that of
both spouses, if married filing jointly) |
|
Note.
If line 2 is equal to or more than the
amount on line 1, STOP HERE. Your IRA
contributions are not deductible. See Non-
deductible Contributions.
| 3. |
Subtract line 2 from 1. If line 3 is
$10,000 or more, STOP HERE. You can take a full IRA deduction
for contributions of up to $2,000 or 100% of your compensation,
whichever is less. |
|
| 4. |
Multiply line 3 by 20% (.20). If the result
is not a multiple of $10, round it to the next highest multiple of
$10. (For example, $611.40 is rounded to $620.) However, if the result
is less than $200, enter $200 |
|
| 5. |
Enter your compensation. If you are filing a joint
return and your compensation is less than your spouse's, include your
spouse's compensation reduced by his or her traditional IRA and Roth
IRA contributions for this year. If you file Form 1040, do not reduce
your compensation by any losses from self-employment. |
|
| 6. |
Enter contributions made, or to be made, to
your traditional IRA for 2000, but do not enter more than
$2,000. If contributions are more than $2,000, see Excess
Contributions, later. |
|
| 7. |
IRA deduction. Compare lines 4, 5,
and 6. Enter the smallest amount (or a smaller amount if you choose)
here and on the Form 1040 or 1040A line for your IRA, whichever
applies. If line 6 is more than line 7 and you want to make a
nondeductible contribution, go to line 8. |
|
| 8. |
Nondeductible contribution.
Subtract line 7 from line 5 or 6, whichever is smaller. Enter
the result here and on line 1 of your Form 8606. |
|
Reporting Deductible Contributions
If you file Form 1040, enter your IRA deductions on line 23 of that
form. If you file Form 1040A, enter your IRA deductions on line 16 of
that form. You cannot deduct IRA contributions on Form 1040EZ.
Self-employed.
If you are self-employed (a sole proprietor or partner) and have a
SEP-IRA or a SIMPLE IRA, enter your deduction for allowable plan
contributions on line 29, Form 1040.
Nondeductible Contributions
Although your deduction for IRA contributions may be reduced or
eliminated, contributions can be made to your IRA of up to the general
limit ($2,000 or 100% of compensation, whichever is less) or the
spousal IRA limit (whichever applies). The difference between your
total permitted contributions and your IRA deduction, if any, is your
nondeductible contribution.
Example.
Sonny Martin is single. In 2000, he is covered by a retirement plan
at work. His salary is $52,312. His modified adjusted gross income
(modified AGI) is $55,000. Sonny makes a $2,000 IRA contribution for
that year. Because he is covered by a retirement plan and his modified
AGI is above $42,000, he cannot deduct his $2,000 IRA contribution.
However, he designates this contribution as a nondeductible
contribution by reporting it on his tax return as explained later
under Reporting Nondeductible Contributions.
Designating contributions as nondeductible.
To designate contributions as nondeductible, you must file Form
8606. (See the filled-in Forms 8606 in Appendix D.)
You do not have to designate a contribution as nondeductible until
you file your tax return. When you file, you can even designate
otherwise deductible contributions as nondeductible contributions.
Tax on earnings on nondeductible contributions.
As long as contributions are within the contribution limits, none
of the earnings or gains on those contributions (deductible or
nondeductible) will be taxed until they are distributed.
Cost basis.
You will have a cost basis in your IRA if there are nondeductible
contributions. Your cost basis is the sum of the nondeductible
contributions to your IRA minus any withdrawals or distributions of
nondeductible contributions.
Generally, distributions from any of your traditional IRAs will
include both taxable and nontaxable (cost basis) amounts. See Are
Distributions Taxable?, later, for more information.
Recordkeeping. There is a recordkeeping worksheet,
Appendix A, Summary Record of Traditional IRA(s) for 2000,
that you can use to keep records of deductible and nondeductible IRA
contributions.
You must file Form 8606 to report
nondeductible contributions even if you do not have to file a tax
return for the year.
Failure to report nondeductible contributions.
If you do not report nondeductible contributions, all of the
contributions to your traditional IRA will be treated as deductible.
All distributions from your IRA will be taxed unless you can show,
with satisfactory evidence, that nondeductible contributions were
made.
Penalty for overstatement.
If you overstate the amount of nondeductible contributions on your
Form 8606 for any tax year, you must pay a penalty of $100 for each
overstatement, unless it was due to reasonable cause.
Penalty for failure to file Form 8606.
You will have to pay a $50 penalty if you do not file a required
Form 8606, unless you can prove that the failure was due to reasonable
cause.
Examples -- Worksheet for
Reduced IRA Deduction
The following examples illustrate the use of the IRA deduction
worksheet shown earlier under How To Figure Your Reduced IRA
Deduction.
Example 1.
For 2000, Tom and Betty Smith file a joint return on Form 1040.
They both work and Tom is covered by his employer's retirement plan.
Tom's salary is $40,000 and Betty's is $16,555. They each have a
traditional IRA and their combined modified AGI, which includes $2,000
interest and dividend income, is $58,555. Since their modified AGI is
between $52,000 and $62,000 and Tom is covered by an employer plan,
Tom is subject to the deduction phaseout discussed earlier under
Limit If Covered By Employer Plan.
For 2000, Tom contributed $2,000 to his IRA and Betty contributed
$2,000 to hers. Even though they file a joint return, they must use
separate worksheets to figure the IRA deduction for each of them.
Tom can take a deduction of only $690. He must treat $1,310 ($2,000
minus $690) of his contributions as nondeductible.
He can choose to treat the $690 as either deductible or
nondeductible contributions. He can either leave the $1,310 of
nondeductible contributions in his IRA or withdraw them by April 16,
2001. He decides to treat the $690 as deductible contributions and
leave the $1,310 of nondeductible contributions in his IRA.
Using the Worksheet for Reduced IRA Deduction, Tom
figures his deductible and nondeductible amounts as follows:
Worksheet for Reduced IRA Deduction
| (Use only if you or your spouse is covered by an
employer plan and your modified AGI is within the phaseout range that
applies.) |
| If you are covered and
your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Single or
Head of household |
$ 32,000 |
$ 42,000 |
| Married-joint return or
Qualifying widow(er) |
$ 52,000 |
$ 62,000 |
| Married-separate return* |
$ -0- |
$ 10,000 |
| If your spouse is covered, but you
are not, and your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Married-joint return |
$150,000 |
$160,000 |
| Married-separate return* |
$-0- |
$ 10,000 |
| *See Filing Status,
earlier. |
| 1. |
Enter the amount from above that applies |
$ 62,000 |
| 2. |
Enter your modified AGI (that of
both spouses, if married filing jointly) |
58,555 |
Note.
If line 2 is equal to or more than the
amount on line 1, STOP HERE. Your IRA
contributions are not deductible. See Non-
deductible Contributions.
| 3. |
Subtract line 2 from line 1. If line 3
is $10,000 or more, STOP HERE. You can take a full IRA deduction
for contributions of up to $2,000 or 100% of your compensation,
whichever is less. |
3,445 |
| 4. |
Multiply line 3 by 20% (.20). If the result
is not a multiple of $10, round it to the next highest multiple of
$10. (For example, $611.40 is rounded to $620.) However, if the result
is less than $200, enter $200 |
690 |
| 5. |
Enter your compensation. If you are filing a joint
return and your compensation is less than your spouse's, include your
spouse's compensation reduced by his or her traditional IRA and Roth
IRA contributions for this year. If you file Form 1040, do not reduce
your compensation by any losses from self-employment. |
40,000 |
| 6. |
Enter contributions made, or to be made, to
your IRA for 2000, but do not enter more than $2,000. If
contributions are more than $2,000, see Excess Contributions,
later. |
2,000 |
| 7. |
IRA deduction. Compare lines 4, 5,
and 6. Enter the smallest amount (or a smaller amount if you choose)
here and on the Form 1040 or 1040A line for your IRA, whichever
applies. If line 6 is more than line 7 and you want to make a
nondeductible contribution, go to line 8. |
690 |
| 8. |
Nondeductible contribution.
Subtract line 7 from line 5 or 6, whichever is smaller. Enter
the result here and on line 1 of your Form 8606. |
1,310 |
Betty figures her IRA deduction as follows. Betty can treat all or
part of her contributions as either deductible or nondeductible. This
is because her $2,000 contribution for 2000 is not subject to the
deduction phaseout discussed earlier under Limit If Covered By
Employer Plan. She does not need to use the Worksheet for
Reduced IRA Deduction since their modified AGI is not within the
phaseout range that applies. Betty decides to treat her $2,000 IRA
contributions as deductible.
The IRA deductions of $690 and $2,000 on the joint return for Tom
and Betty total $2,690.
Example 2.
Assume the same facts as in Example 1, except that Tom
contributed $2,000 to his Roth IRA and $2,000 to a traditional IRA for
Betty (a spousal IRA) because Betty had no compensation for the year
and did not contribute to an IRA. Also, their modified AGI, because of
capital gains from sales of stock, increased to $156,555. Betty
figures her IRA deduction as follows:
Worksheet for Reduced IRA Deduction
| (Use only if you or your spouse is covered by an
employer plan and your modified AGI is within the phaseout range that
applies.) |
| If you are covered and
your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Single or
Head of household |
$ 32,000 |
$ 42,000 |
| Married-joint return or
Qualifying widow(er) |
$ 52,000 |
$ 62,000 |
| Married-separate return* |
$ -0- |
$ 10,000 |
| If your spouse is covered, but you
are not, and your filing status is: |
And your
modified AGI
is over: |
Enter on
line 1
below: |
| Married-joint return |
$150,000 |
$160,000 |
| Married-separate return* |
$-0- |
$ 10,000 |
| *See Filing Status,
earlier. |
| 1. |
Enter the amount from above that applies |
$160,000 |
| 2. |
Enter your modified AGI (that of
both spouses, if married filing jointly) |
156,555 |
Note.
If line 2 is equal to or more than the
amount on line 1, STOP HERE. Your IRA
contributions are not deductible. See Non-
deductible Contributions.
| 3. |
Subtract line 2 from line 1. If line 3
is $10,000 or more, STOP HERE. You can take a full IRA deduction
for contributions of up to $2,000 or 100% of your compensation,
whichever is less. |
3,445 |
| 4. |
Multiply line 3 by 20% (.20). If the result
is not a multiple of $10, round it to the next highest multiple of
$10. (For example, $611.40 is rounded to $620.) However, if the result
is less than $200, enter $200 |
690 |
| 5. |
Enter your compensation. If you are filing a joint
return and your compensation is less than your spouse's, include your
spouse's compensation reduced by his or her traditional IRA and Roth
IRA contributions for this year. If you file Form 1040, do not reduce
your compensation by any losses from self-employment. |
38,000 |
| 6. |
Enter contributions made, or to be made, to
your IRA for 2000, but do not enter more than $2,000. (If
contributions are more than $2,000, see Excess Contributions,
later.) |
2,000 |
| 7. |
IRA deduction. Compare lines 4, 5,
and 6. Enter the smallest amount (or a smaller amount if you choose)
here and on the Form 1040 or 1040A line for your IRA, whichever
applies. (If line 6 is more than line 7 and you want to make a
nondeductible contribution, go to line 8.) |
690 |
| 8. |
Nondeductible contribution.
Subtract line 7 from line 5 or 6, whichever is smaller. Enter
the result here and on line 1 of your Form 8606. |
1,310 |
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