How can I calculate non deductible traditional IRA?

Determining the Non-Deductible Portion of a Traditional IRA Contribution

The method for determining the non-deductible portion of a traditional IRA contribution involves several steps. The Internal Revenue Service (IRS) provides guidelines for taxpayers to calculate the deductible and non-deductible portions of their IRA contributions based on their income, filing status, and whether they or their spouse are covered by a retirement plan at work.

Here are the general steps to determine the non-deductible portion of a traditional IRA contribution:

1. Determine Your IRA Deduction Limit

- Check if you or your spouse are covered by a retirement plan at work.

- Refer to the IRS income phase-out ranges for traditional IRA deductions, which are adjusted annually for inflation and can be found in the relevant IRS publications or notices.

2. Calculate Your Modified Adjusted Gross Income (MAGI)

- Calculate your MAGI by taking your adjusted gross income (AGI) and adding back certain deductions such as student loan interest, foreign earned income exclusion, and others as specified by the IRS.

3. Apply the Applicable Phase-Out Range

- If your MAGI falls within the phase-out range for your filing status and retirement plan coverage, you will only be able to take a partial deduction for your IRA contribution.

- The phase-out range determines the percentage of your contribution that is deductible.

4. Calculate the Non-Deductible Portion

- Subtract the deductible portion of your IRA contribution from the total amount you contributed to arrive at the non-deductible portion.

5. Report Non-Deductible Contributions

- Use IRS Form 8606, "Non-deductible IRAs," to report non-deductible contributions to your traditional IRA. This form helps you track the basis in your IRA and calculate the taxable portion of any distributions.

6. Keep Records

- Maintain records of your non-deductible contributions to ensure that you do not pay tax on these amounts again when you take distributions from your IRA.

For the most current phase-out ranges, contribution limits, and other relevant tax information, you should refer to the latest IRS publications, which may contain updates to the tax code, revenue procedures, and IRS notices.

Please note that the above steps are a general guide. The specific calculations can be complex, especially if there are changes in the tax law or if additional IRS guidance has been issued.

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26 U.S. Code § 408 - Individual retirement accounts 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter D - Deferred Compensation, Etc. 26 U.S. Code Part I - PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC. 2023-12-11

Internal Revenue Bulletin: 2023-47 2023-11-19

Internal Revenue Bulletin: 2022-45 2022-11-06

Internal Revenue Bulletin: 2017-45 2017-11-05

Internal Revenue Bulletin: 2008-45 2008-11-09