an actual question on taxes


R

rob

Hi, I am making my usual SEP contribution for 2006 but I've
been trying to figure out whether I (and perhaps the spouse)
can make a deductible contribution to a traditional IRA and
further reduce my tax payments this year. We're both in our
early 60's.

A straight out reading seems to say that if I'm under 70 1/2
years, I can continue to make tax deductible traditional IRA
contributions.

I've gotten opinions from 4 places. I won't go into who they
are. Two say I can and two say I can't because I'm over 59 1/2.

I don't expect anyone here to take the time to really shake
this out but can someone perhaps point me to a place that
explains this clearly so I can make a decision whether to
try it? Thanks in advance.
 
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P

Phil Marti

rob said:
Hi, I am making my usual SEP contribution for 2006 but I've been trying to
figure out whether I (and perhaps the spouse) can make a deductible
contribution to a traditional IRA and further reduce my tax payments this
year. We're both in our early 60's.
As long as you file a joint return, each of you can make a $5,000 IRA
contribution of some sort in addition to your SEP contribution. IRS
Publication 590.
A straight out reading seems to say that if I'm under 70 1/2 years, I can
continue to make tax deductible traditional IRA contributions.
You can make traditional IRA contributions. Whether they're deductible or
not is a different question.
I've gotten opinions from 4 places. I won't go into who they are. Two say
I can and two say I can't because I'm over 59 1/2.
Totally discard the ones that refer to age 59 1/2. They don't know what
they're talking about.

Because you are contributing to the SEP you are "covered" by a retirement
plan for 2006. That means deductibility of traditional IRA contributions
for both you and your wife is subject to the AGI phaseouts explained in
Chapter 1 of Pub 590. If she was not covered by a retirement plan the
phaseout range for her contributions is different from yours.

If you cannot deduct traditional IRA contributions you can still make
nondeductible contributions. If your AGI allows, a Roth contribution is
always superior to a nondeductible traditional contribution.
 
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R

rob

Thank you sir.

Phil said:
As long as you file a joint return, each of you can make a $5,000 IRA
contribution of some sort in addition to your SEP contribution. IRS
Publication 590.




You can make traditional IRA contributions. Whether they're deductible or
not is a different question.




Totally discard the ones that refer to age 59 1/2. They don't know what
they're talking about.

Because you are contributing to the SEP you are "covered" by a retirement
plan for 2006. That means deductibility of traditional IRA contributions
for both you and your wife is subject to the AGI phaseouts explained in
Chapter 1 of Pub 590. If she was not covered by a retirement plan the
phaseout range for her contributions is different from yours.

If you cannot deduct traditional IRA contributions you can still make
nondeductible contributions. If your AGI allows, a Roth contribution is
always superior to a nondeductible traditional contribution.
 

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