IRA Contribution Deduction Income Limits
In order for an IRA contribution to be deductible one of two criteria must be met.
If neither you nor your spouse’s employer offers a retirement plan, then you can deduct the full amount of your traditional IRA contribution up to $5,000 for 2011. However, if you are over 50 then you can contribute an additional catch-up contribution of $1,000 for a total contribution of $6,000. Otherwise, you are subject to income limits.
Note the key phrase here is offer a retirement plan. It does not matter whether or not you participated. If the plan was offered (no matter how bad it might be) then this rule does not apply to you.
If either you or your spouse was covered by a retirement plan during any part of the tax year, then you must meet certain income limits to deduct your IRA contribution.
If you are married filing jointly, then you cannot take any IRA deduction on your 2011 taxes if your income (specifically your modified adjusted gross income, or MAGI) is over $110,000. If you are filing single (or head of household) then you cannot take any deduction if your income is over $66,000.
If you are married filing jointly and your income is less than $90,000 then you can take the full $5,000 IRA contribution deduction. (And the $1,000 catch-up contribution if you are over age 50.) If you are filing single, then you can take a full deduction if you make less than $56,000 for the tax year.
If only one spouse is covered by a retirement plan, then the non-covered spouse may take a full deduction if the joint income is less than $169,000 and no deduction if the income is higher than $179,000. Income levels in between result in a partial deduction.