Over at Bogleheads we came across the following discussion:
IRA Deduction Tax Question
by bobsmith » Sat Jan 10, 2015 11:06 am
Hi,
I'm trying to determine if I can deduct an IRA contribution. I do have a defined benefit plan.
Married filing jointly, looks like the phase out is 98k-118K (for 2015).
1) My gross income is about 102,000 but there may be another 10K in dividends or cap gains tax. I think this means my MAGI is right in the middle of that phase out window. Right?
2) I know with things like the child tax credit, a tax deferred contribution to a retirement plan is subtracted from the MAGI before it is considered. To be clear, in this case, you can't deduct an IRA contribution before determining the MAGI, right? (I know it's circular logic, but I had to ask)
3) It says I can make a "partial" deduction, but I can't find where it describes what this partial deduction is. For example, say my AGI is 108,000. I know I can still contribute the full amount to my IRA, but how much can I deduct?
4) Does this deduction limit only apply to IRAs? Can I still deduct the full amount from other tax-deferred plans like a Trad 403b or pre-tax 457 contribution even if I max them both out?
Thanks
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by Toons » Sat Jan 10, 2015 11:14 am
This calculator might be of assistance,,,for starters. 
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: IRA Deduction Tax Question
by bobsmith » Sat Jan 10, 2015 11:52 am
Toons,
Thanks. 
Playing with that calculator and extrapolating backwards.... 98-118 makes for a 20k spread. Over $5500 (for under 50) that's a loss in deduction of $275 for every $1000 I go over.
I think this answers my question but if anyone has the official parameters, please post.
More importantly, I want to put money in a 403b and 457. I haven't seen anything, but I want make sure there are not any similar deduction limits for these plans based on whether or not I am involved in a work retirement plan. (I know of the standard limits based on income).
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Re: IRA Deduction Tax Question
by Toons » Sat Jan 10, 2015 11:54 am
bobsmith wrote:Toons,
Thanks. 
Playing with that calculator and extrapolating backwards.... 98-118 makes for a 20k spread. Over $5500 (for under 50) that's a loss in deduction of $275 for every $1000 I go over.
I think this answers my question but if anyone has the official parameters, please post.
More importantly, I want to put money in a 403b and 457. I haven't seen anything, but I want make sure there are not any similar deduction limits for these plans based on whether or not I am involved in a work retirement plan. (I know of the standard limits based on income).
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: IRA Deduction Tax Question
by Bob's not my name » Sat Jan 10, 2015 12:31 pm
Not sure I follow your questions.
bobsmith wrote:1) My gross income is about 102,000 but there may be another 10K in dividends or cap gains [tax]. I think this means my MAGI is right in the middle of that phase out window. Right?
2) I know with things like the child tax credit, a tax deferred contribution to a retirement plan is subtracted from the MAGI before it is considered. To be clear, in this case, you can't deduct an IRA contribution before determining the MAGI, right? (I know it's circular logic, but I had to ask)
3) It says I can make a "partial" deduction, but I can't find where it describes what this partial deduction is. For example, say my AGI is 108,000. I know I can still contribute the full amount to my IRA, but how much can I deduct?
4) Does this deduction limit only apply to IRAs? Can I still deduct the full amount from other tax-deferred plans like a Trad 403b or pre-tax 457 contribution even if I max them both out?
Thanks
1) You mean 10k of dividends and capital gains, so your gross income is $112,000, right? If that puts you in the middle of the phaseout it means you have no pre-tax health, dental, or disability insurance premiums withheld from your pay, are making no FSA or HSA contributions, make no contribution to the pension plan, and make no 403b or 457 contributions. Is that right? Also, you don't mention whether your spouse is covered by an employer plan. A non-covered spouse is eligible for deductible TIRA contributions provided your MAGI is under $183,000.
2) Right, the child tax credit phaseout adds 5% to your marginal rate. If you have two kids this typically works about to be about the same threshold as the 25% bracket, so your federal marginal rate doubles at that threshold, from 15% to 30%. Worse, if you have LTCG and QD straddling the threshold, which it appears you do, your marginal earned income is taxed at 15% + 15% for LTCG/QD displaced into the 25% bracket + 5% for the child tax credit phaseout = 35% federal, not including state.
3) Half.
4) Yes, at least for your IRA, so not plural until we know your spouse's situation. Yes.
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Re: IRA Deduction Tax Question
by Alan S. » Sat Jan 10, 2015 12:48 pm
The 2013 worksheet 1-2 is on p 19 of the 2013 Pub 590 here: http://www.irs.gov/pub/irs-pdf/p590.pdf
You need to change the MFJ phaseout range from 95-115k to the 2015 range of 98-118k. Then follow the worksheet and note the small rounding requirement included. And you DO need the correct MAGI which includes several possible add backs to your actual AGI.
If your spouse is NOT covered by a retirement plan at any time in 2015 and earns less than you, any spousal contribution can be deducted because the phaseout range for the non covered spouse is considerably higher (183-193k).
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Re: IRA Deduction Tax Question
by DSInvestor » Sat Jan 10, 2015 1:11 pm
You're making Roth 403b/457b contributions right? Traditional 403b/457b contributions are always deductible and not subject to phase outs. Rather than worry about the phase outs for Traditional IRA deductions, you can simply change some of your work place plans contributions to Traditional 403b/457b and contribute to Roth IRA instead.
Scenario 1: Max out Roth 403b and Traditional IRA.
Roth 403b: 18K not tax deductible.
Traditional 403b: ZERO
Traditional IRA 5.5K (may be partially deductible)
Roth IRA: ZERO
Scenario 2: Max out Roth IRA and a mix of Trad/Roth 403b.
Roth 403b: 12.5K not tax deductible
Traditional 403b: 5.5K (always tax deductible)
Traditional IRA: ZERO
Roth IRA: 5.5K
You will see that both scenarios result in 18K of Roth space added but scenario 2 has the benefit of full tax deduction for traditional contributions in your tax situation. Roth 403b/457b are subject Required Minimum Distribution (RMD) after age 70 1/2. Roth IRA does not have RMD.
You'll have a lower tax liability with scenario 2 if you can get the full tax deduction for that 5.5K. If you want to get your AGI/MAGI to get the max child tax credit, increase your Traditional contributions to work place plans to get under the phase outs.
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