Your adjusted gross income, or AGI, measures your total taxable income minus any adjustments to income. Lowering your AGI reduces your tax bill and may allow you to claim certain other deductions that judge eligibility based on your AGI, such as the mortgage insurance premiums deduction. One adjustment to income many people can claim is the traditional IRA contribution deduction. Knowing the requirements for claiming the deduction allows you to use it to your benefit when you file your income taxes.
Compare your modified adjusted gross income (MAGI) to the annual limits for your filing status if you or your spouse has access to an employer-sponsored retirement plan. Examples of employer plans include 401k plans and 403b plans. If your MAGI exceeds the limits, you cannot reduce your AGI with a traditional IRA contribution. If neither you nor your spouse can contribute to an employer plan, you can use a traditional IRA contribution to lower your AGI regardless of your income.
Contribute to your traditional IRA before the income tax filing deadline for the year. Note that the deadline for using the contribution on your taxes is the tax filing deadline, not the end of the year. For example, if you make a contribution to your traditional IRA on April 1, 2012, you could use it to reduce your AGI for 2011. However, if you do so, you cannot use it on your 2012 return.
Report the value of your traditional IRA contribution on your income taxes using Form 1040 or Form 1040A. The amount of your contribution reduces your AGI for the year. For example, if your total taxable income equals $45,000 but you contributed $2,000 to a traditional IRA, your AGI would be $43,000.
- Contributions made to a Roth IRA do not reduce your AGI.
Items you will need
- Form 1040A or 1040
- Internal Revenue Service: Publication 590
- Internal Revenue Service: Effect of Modified AGI on Deduction if You Are NOT Covered by a Retirement Plan at Work
- Internal Revenue Service: Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work
- Internal Revenue Service: Form 1040 Instructions
- Internal Revenue Service: Form 1040A Instructions
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