Why is my traditional IRA not tax deductible

[ea1776]

So I made my 2007 contribution to my traditional IRA, thinking it would be tax deductible, but it was not. I made around 70k for 2007 tax return.

1. Why was is it not deductible?
2. Are there any tax benefits to the traditional then? Does it behave just like a Roth in that case?
3. Any ideas for savings / retirement funds that will benefit me tax-wise?

Thanks,
ea1776

[maat55]

Who said it was not?

[ea1776]

H&R Block.

[Scanner]

Oy vey.

Yes, it is. . .a traditional IRA is tax deductible and grows tax tax-free - it's taxed on exit.

A Roth is not deductible. It grows tax-free but is not taxed on exit.

[dardhel]

Traditional IRAs are tax deductible if your income is below a certain level. Not sure of the exact $ amounts though.

I found it, you have income limits if you and/or spouse contribute to an employer sponsored retirement plan. You can check the levels online in a few sources.

Check

Traditional IRA Deductibility Limits

They have a table with the limits...

[disneysteve]

So I made my 2007 contribution to my traditional IRA, thinking it would be tax deductible, but it was not. I made around 70k for 2007 tax return.

1. Why was is it not deductible?

I believe the cutoff for the deduction was $62,000 last year. That's if you filed as single or head of household. So you earned too much to deduct your contribution.

[disneysteve]

a traditional IRA is tax deductible

Whether or not it is deductible is based on your income and filing status.

http://www.irs.gov/pub/irs-pdf/p590.pdf

Here is the relevant IRS publication.

[Snave]

It also depends on if you have a 401k or similar plan (403b) at work and contribute. Disneysteve's site should answer the question you have. There could be a number of reasons.

[Snave]

One more point: if it is not tax deductible for some reason, I would check about converting it to a Roth. You have already paid the taxes, so you might as well get the benefits.

[ea1776]

Thanks for all the input.

I contribute to an employer sponsored 401k, so I guess traditional IRA's are out of the question for me, or at least they have no tax benefit.

Will I still get the benefits from the Roth, regardless of income?

Thanks again,
ea1776

[noppenbd]

You should be able to recharacterize your nondeductible traditional IRA contribution as a Roth contribution (check with your IRA provider to see if this can be done). There are income limits for Roth accounts but you are below them.

With a Roth, when you withdraw the funds at retirement the withdrawals (including gains) will not be taxable. If you do not recharacterize (nondeductible IRA) then when you withdraw the nondeductible monies, any gains will be taxable. Since you are expecting significant gains on the money, the Roth is definitely preferable to a nondeductible traditional IRA.