April 15, 2025, is the last day for making contributions to individual retirement accounts that can be treated as if made during 2024 (and that therefore may be deductible on 2024 income tax returns). This post surveys the rules governing IRA contributions. More details can be found in IRS Publication 590-A, Contributions to Individual Retirement Arrangements.
The two basic questions about contributions are, how much can one contribute, and how much of the contribution is deductible? The answer to the first is pretty straightforward:
A taxpayer who was under age 50 on December 31, 2024, may contribute up to $7,000 but not more than 100 percent of his taxable compensation.
A taxpayer who was 50 or older on December 31, 2025, may contribute up to $8,000, again limited to 100 percent of taxable compensation.
Taxpayers filing joint returns may each contribute up to the individual limitation ($7,000 or $8,000), but the two together may not contribute more than their joint taxable income. (In other words, a spouse with no income may contribute up to $7,000 or $8,000, depending on age, so long as the total compensation shown on the return, before subtracting the couple’s IRA contributions, is at least as much as the combined contributions.)
Deductibility is more complicated but has a couple of simple situations:
Someone who is not an “active participant” in a retirement plan (that is, who doesn’t benefit under the plan in the current year; see the ERISA Glossary for italicized terms) may deduct his entire contribution, except for contributions to a Roth IRA.
Contributions to a Roth IRA are not deductible at all. Their virtue is that distributions, including income earned by the IRA, are tax-free if fairly simple conditions are met.
Further effort is needed to determine how much of a contribution is deductible when the IRA owner is an “active participant” or, for joint return filers, when either spouse has that status. The parameters for the deduction limitation are type of return filed, “active participant” status, modified adjusted gross income, the MAGI level below which the contribution is fully deductible, and the level at which the deduction is fully phased out, all as summarized in this table:
Filing Status | Lower Bound | Upper Bound |
Joint Return (including qualifying widow or widower) – IRA owner an active participant | $123,000 | $143,000 |
Joint Return – IRA owner not an active participant but spouse is | $230,000 | $240,000 |
Married filing separately and did not live apart for the entire year | $0 | $10,000 |
Single, head of household or married filing separately but lived apart all year | $77,000 | $87,000 |
Notes on the table:
See IRC §219(g)(3)(B) and §219(g)(7)(A).
If “modified adjusted gross income” (“MAGI”) is no greater than the lower bound, the contribution is fully deductible.
If MAGI equals or exceeds the upper bound, no portion of the contribution is deductible.
If MAGI is between the lower bound and the upper bound, deductibility is phased out ratably. The percentage reduction in the deductible contribution is the ratio of compensation in excess of the lower bound to the difference between the upper bound and the lower bound.
MAGI adds back several items that are excluded from AGI. The list is in §219(g)(3)(A): the IRA contribution itself, savings bonds redeemed to pay college tuition (§135), qualified adoption assistance (IRC §137), student loan interest (§221), and foreign earned income and housing allowances (IRC §911).
Deduction limitations are rounded down to the next lower $10.
At least $200 is deductible if any deduction at all is allowed. A single filer with MAGI of $86,999 may deduct $200.
The IRA deduction is “above the line” and therefore is available to taxpayers who don’t itemize. Any contribution beyond the deductibility limit is nondeductible but not useless. IRAs are tax-exempt unless they generate unrelated business taxable income. Hence, the taxation of earnings on nondeductible contributions is deferred until they are distributed. (The portion of a distribution representing the return of previously taxed contributions is not taxed again.)
Examples
1. Jack and Jill are married and file a joint return reporting MAGI of $135,578. Jack was 50 years old on December 31, 2024, and Jill was 49. Each is an “active participant”. The percentage reduction in their deductible IRA contributions is ($135,578 - $123,000) ÷ $20,000 = 62.89%. Jack’s deduction limit is therefore $8,000 – ($8,000 × 62.89%) = $2,968.80, which is rounded down to $2,960. Jill’s limit is $2,597.70, which is rounded down to $2,590. If Jack contributes $8,000 and Jill $7,000, the above-the-line deduction on their return will be $5,550. That is the case even if, for instance, Jill’s individual compensation is less than her contribution.
2. All the facts are the same, except that Jack is an active participant and Jill is not. Jack’s deduction limit is the same as before, $2,960. The lower bound for calculating Jill’s deduction limit is $230,000. Since the couple’s MAGI is less than the lower bound ($230,00), Jill’s entire IRA contribution is deductible. If she and Jack each make the maximum contribution, they will be able to deduct $9,960 on their joint return.
A Few More Points to Bear in Mind
The limitation on contributions to IRAs does not apply to rollovers. Any eligible rollover distribution can be rolled over into an IRA, regardless of the amount.
All contributions must be made in cash, except that an IRA owner who receives property (e. g., shares of stock) in an eligible rollover distribution may roll over exactly the same property to his IRA.
The ability to make Roth IRA contributions is phased out as modified adjusted gross income increases. The phase-out works in the same way as the deductibility phase-out, except that the “lower bound” and “upper bound” in 2024 are $236,000 and $246,000, respectively, for joint return filers, zero and $10,000 for married taxpayers filing separately, and $150,000 and $165,000 for everyone else. That restriction matters very little, though. A taxpayer whose MAGI is too high for a direct Roth IRA contribution may contribute to a traditional, non-Roth IRA and then roll that amount from it into a Roth IRA.
An IRA contribution made between January 1, 2025, and April 15, 2025, may be treated as either a 2024 or a 2025 contribution, but not of course as both.
Contributions are not “final” until the extended due date for filing individual income tax returns (September 15, 2025, for 2024 returns), whether or not the IRA owner requests an extension. A taxpayer who inadvertently contributes more than permitted or simply changes his mind can withdraw all or any part of the contribution, along with the income attributable to it, and it is as if it had never been made.
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