Question

Ms. Ray is age 46 and single. Her employer made a $2,900 contribution to her qualified profit-sharing plan account, and she made the maximum contribution to her traditional IRA.

Compute her IRA deduction if Ms. Ray’s $51,400 salary is her only income item.

Compute her IRA deduction if Ms. Ray’s $68,450 salary is her only income item.

Compute her IRA deduction if Ms. Ray’s $68,450 salary and $7,420 dividend income are her only income items.

Answer 1

Some rules for making IRA contributions are -• An individual must have earned the income to invest in the IRA , Investment incomes and rental incomes received by an individual do not count for such investments . • Even though an individual is not eligible for deduction for IRA invested he can still make contributions . And contribution made towards this will be tax deferred and becomes taxable only when the investment distributed . 1. IRA deduction I is phased out for year 2018 as under - if adjusted gross income for single fillers is between $63,000-$73,000.And seduction allowed only to the extent of $ 5,500($6,600 if aged 50 or above ) if aged below 50.Thus since Ms Grey is also a single filler aged 46(<50) deduction allowable would be $5,500. 2.Since her salary is $68,450 that is it comes under the phase out ($63,000-$73,000) Ms.Grey in this case would not be allowed any deduction for Traditional IRA made by her .