What is the IRA deduction?

A useful tax benefit for retirement savers

Derek Silva

By

Derek Silva

Derek Silva

Personal Finance Expert

Derek is a personal finance editor at Policygenius in New York City, and an expert in taxes. He has been writing about estate planning, investing, and other personal finance topics since 2017. He especially loves using data to tell a story. His work has been covered by Yahoo Finance, MSN, Business Insider, and CNBC.

Published April 7, 2021|6 min read

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Key Takeaways

  • Your full contribution to a traditional IRA is deductible if you aren’t covered by a retirement plan at work

  • If you have a work retirement plan, there are income limits for the IRA deduction

  • The IRA contribution limit for 2020 and 2021 is $6,000 if you’re under age 50 and $7,000 if you’re over age 50

  • Roth IRAs aren’t eligible for the IRA deduction

The IRA deduction allows you to deduct some or all of your contributions to a traditional IRA. The maximum value of the IRA tax deduction is the IRA contribution limit: $6,000 for taxpayers under age 50 and $7,000 for people 50 and older in 2020 and 2021.

If you’re covered by a retirement plan at work, there are income limits that determine how much of your IRA contributions are deductible. The income limits are based on your modified adjusted gross income (MAGI) and they vary based on your tax filing status. Even if you don’t qualify for the full IRA deduction, you may still qualify for a partial tax deduction, meaning you can deduct some of the value of your IRA contributions.

The IRA deduction does not apply to Roth IRA contributions. It also doesn’t cover contributions that an employer makes on your behalf, meaning it may not apply to (or deduction rules may be different for) a SEP IRA or SIMPLE IRA. If you’re married and want to contribute to a spousal IRA — an account that one spouse contributes to on behalf of the other — you can still deduct those contributions with the IRA deduction.

IRA deduction limits

The full IRA deduction is worth the full value of your IRA contribution, up to the 2020 and 2021 limit of $6,000 for people under age 50 and $7,000 for people age 50 or older. If you aren’t covered by a retirement plan at work, you can deduct the full value of your IRA contribution regardless of your income or filing status. This applies to married couples if neither spouse was covered by a work plan.

For anyone who is covered by an employer-sponsored retirement plan, the deduction has a phase out and your income will determine whether all, some, or none of your IRA contribution is deductible. The value of your IRA deduction depends on four main factors:

  • Whether or not you have access to an employer-sponsored retirement plan

  • How much you contributed to your traditional IRA

  • Your modified adjusted gross income (MAGI)

  • Your tax filing status

If you don’t know whether you’re covered by your employer’s retirement plan, your best option is to ask your employer. It may also help you to look at any W-2 form you’ve received from your employer: You’re covered by their plan if the “Retirement plan” checkbox in box 13 is marked.

Related: 53 deductions and credits you can claim in 2021

IRA deduction income limits by filing status

For anyone who is covered under a work retirement plan — including married couples where one spouse is covered — there are limits to your IRA tax deduction based on your income and filing status. The table below shows the income limits for the 2020 IRA deduction, which you claim on your taxes in early 2021 for the IRA contributions you made in the 2020 calendar year.

2020 IRA deduction income limits if you have a work retirement plan

Filing StatusMaximum income for full IRA deductionMaximum income for partial IRA deduction
Single$65,000 or less$65,001 to $74,999
Head of Household$65,000 or less$65,001 to $74,999
Married, filing jointly$104,000 or less$104,001 to $123,999
Married, filing jointly (one spouse covered)$196,000 or less$196,001 to $205,999
Qualified widow(er)$104,000 or less$104,001 to $123,999
Married, filing separatelyn/a$9,999 or less

The IRA deduction for single filers

You can deduct your full IRA contribution if your modified AGI is $65,000 or less ($66,000 or less for 2021 taxes). You can get a partial deduction if your MAGI is more than $65,000 but less than $75,000. You are no longer eligible for the deduction if your income is $75,000 or more ($76,000 in 2021). These limits also apply to anyone who uses the married filing separately status and didn’t live with their spouse at any point during the year.

The IRA deduction for heads of household

A head of household has the same income limits as single filers. You can deduct your full IRA contribution if your modified AGI is $65,000 or less ($66,000 in 2021). You can get a partial deduction if your MAGI is more than $65,000 but less than $75,000. You can no longer claim the IRA tax deduction once your income is $75,000 or more ($76,000 in 2021).

Related: Who qualifies as my dependent?

The IRA deduction for joint filers

If both spouses are covered by a retirement plan at work, you’re eligible to deduct the full value of your traditional IRA contribution if your MAGI is $104,000 or less ($105,000 in 2021). You can claim a partial deduction if your income is more than $104,000 but less than $124,000. Married couples filing jointly cannot claim the IRA deduction with an MAGI of $124,000 or more ($125,000 in 2021).

If one spouse is covered by a work retirement plan but the other spouse isn’t, you can deduct your full IRA contribution if your MAGI is $196,000 or less ($198,000 in 2021). There’s a partial deduction for anyone with an MAGI of more than $196,000 but less than $206,000. Income of $206,000 or more ($208,000 in 2021) disqualifies you from claiming the IRA tax deduction.

The income limits for joint filers apply to qualifying widows and widowers as well. The IRA deduction also applies to spousal IRA contributions — those made by one spouse into an IRA owned by the other spouse.

The IRA deduction for married people filing separately

As a married person filing separately, you aren’t eligible to deduct your full IRA contribution if you lived with your spouse at any point during the year and either spouse was covered by a retirement plan at work. You can make a partial deduction if your MAGI is less than $10,000 but you cannot claim the IRA deduction if your income is $10,000 or more. If you’re a separate filer who did not live with your spouse at any point during the year, you qualify for the same income limits as single filers. The income limits are the same for 2020 and 2021.

Learn more: When married couples should file separately

How to claim the IRA deduction

You can claim the IRA deduction by completing Schedule 1 of Form 1040. The IRA deduction is an above-the-line deduction, so you can claim it whether you choose to take the standard deduction or itemize deductions. For more guidance on how to file your taxes, start with our complete guide to Form 1040.

How to calculate your IRA deduction

If you’re using a tax filing service, it should do all the calculations for you to determine the value of your IRA deduction. To calculate the deduction yourself, use the IRA Deduction Worksheet in the IRS instructions for Form 1040. The worksheet can walk you through the calculations no matter your filing status or income level.

Simplify your taxes by using one of this year’s best tax filing services.

Roth IRA tax deductions

Unfortunately, you cannot claim the IRA deduction for a Roth IRA contribution since the tax benefits of a Roth account apply to income on which you’ve already paid income tax. However, some individuals may still benefit from a Roth IRA more than a traditional IRA. For more, read our guide to Roth IRAs. It’s also possible to contribute to both a traditional and Roth IRA in the same year, and deduct your traditional IRA contributions. However, your annual contribution limit is $6,000 across all your IRAs in 2020 and 2021.