Tia is a 52-year-old, unmarried taxpayer who is an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $67,000 in 2018.
a. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a traditional IRA?
b. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a Roth IRA?
a. Tia is allowed to contribute up to $6,500 to a traditional IRA because she is over age 50. She is an active participant in an employer-sponsored qualified retirement plan so her deductible contribution is subject to a phase-out. Her AGI of $67,000 is $4,000 over the $63,000 beginning of the phase-out. Therefore, $4,000/$10,000 or 40% of her allowable deduction is disallowed. $6,500 ($5,500 maximum plus $1,000 for over age 50) × (1 - .40) = $3,900 deduction.
b. Because Tia's AGI is below $120,000, she can contribute the $6,500 ($5,500 maximum plus $1,000 for over age 50) to a Roth IRA. Her participation in a qualified plan is not relevant to the ability to contribute to a Roth IRA; only AGI counts. Contributions to a Roth IRA are never deductible.
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