Can I Deduct a Roth IRA From My Taxable Income?

by Maggie McCormick, studioD

Retirement savings plans offer tax benefits to those funding them. Unfortunately, you cannot deduct a Roth IRA from your taxable income. Other retirement plans do offer tax deductions, but the Roth IRA has separate benefits. Determine which type of retirement savings plan is best for your needs now and in the future.

Deductible Retirement Investments

A 401k or 403b plan through your employer offers tax-deductible savings. Your employer will take the money for the account before you pay taxes, so you won't actually have to take a deductible when you file taxes; it's done for you. A traditional IRA is also tax deductible, though you have to take the deduction yourself. Though less common, SEP and SIMPLE IRAs are also tax deductible retirement savings plans.

Roth IRA Tax Advantage

The main advantage you have when investing in a Roth is that your withdrawals are tax-free. Additionally, earnings in the account are also tax free as long as you are 59 1/2 when you make the withdrawal and the account has been open for at least five years.

Deducting IRA Losses

One way that you can use your Roth IRA for a tax deduction is if your portfolio has taken a significant hit in the market. In order to take advantage of this, you'd need to completely cash out and close the IRA, then deduct the losses minus 2 percent of your adjusted gross income. This option is not a possibility for those who must pay the alternative minimum tax.

Taxes Now or Later

At one time or another, you'll have to pay taxes on your money. When you have tax deductible investments, you pay with pre-tax dollars, but will have to pay taxes on them when you make a withdrawal. With the Roth IRA, you've already paid taxes on the money, so you won't have to pay when you withdraw. In the future, your tax rate may increase, which would make investing in the Roth more advantageous. If it doesn't increase, though, you may find that taking the deduction now works in your favor. There's no way to accurately predict where you'll be in the future, so you have to take the route that seems best for you.

About the Author

Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.

Photo Credits

  • A moment to savour! image by Shirley Hirst from