gross income” (MAGI) of certain levels requires applying a formula which calculates a gradually decreasing permissible deductible contribution. If your MAGI exceeds certain thresholds, you can't contribute anything. These thresholds depend on how you file your taxes. Here they are:
Married filing jointly: Up to $83,000 of MAGI allows for a full contribution. Then a phrase out begins as income increases. For MAGI of $103,000 or above, no deductible contribution is allowed.
Single or Head of Household: If your MAGI is $62,000 or above, no deductible contribution is possible. The phase out starts at $52,000, so anything lower allows for a full contribution.
Married filing separately: For a MAGI of $10,000 or more, no contribution is permitted and the phase out starts at $0.
3. Do you live with your spouse or file a joint return and your spouse is a participant in a qualified plan, but you are not?
In this instance, your ability to make a contribution is reduced to zero if you have a MAGI over $166,000. Up to a MAGI of $156,000, you can take a full deductible contribution.
4. Did you receive “compensation” during the year?
Contributions must be made from compensation received. Sorry, if you were unemployed all year, sheltering that big day at the track is not permitted.
5. Do you have cash?
Contributions must be made in cash. You can't contribute stock or any other type of asset.
6. Do you file a joint tax return and make less than your spouse?
If so, you may be eligible to make a contribution. This rule was originally intended for a spouse who did not work; however, it may apply to a spouse who works as well.
You will need to apply the rules and work through the math. You may find a spouse has no compensation for the year can make the maximum (i.e. under age 50: $4,000) contribution.
7. Did your employer go bankrupt?
The rules here are pretty narrow, but if you qualify you could be in for a nice surprise. You would have to have been a participant in a 401(k) plan with specific attributes and your employer filed Chapter 11. If you qualify, you would be eligible for catch-up contributions of $3,000 for years 2007-2009. And these catch-up provisions apply to all ages-you don't have to be 50 or older.
Armed with this information, you should be in a position to determine if an additional deduction is available to you by contributing to an IRA.
Article Source: http://articlecrazy.com
Robert D. Cavanaugh, CLU is a 36 year financial and estate planning veteran and author of the free newsletter, “The Estate Preservation Advisor”. To subscribe and get the free video, “How to Sell Your Life Insurance Policy for More Than the Cash Value”, go to theestatepreservationadvisor.com/freevideo.htm
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