Question

Chelsea is an employee of Avondale Company. Chelsea's adjusted gross income for the current year is $64,000.Chelsea would like to make the maximum contribution to her individual retirement account this year. Which of the following statements about Chelsea's contribution and deduction amounts is (are) true?

I)If Chelsea is single and is covered by a qualified pension plan, she is allowed to contribute $5,500 to her IRA account, but she is allowed a deduction for only $3,300 of the contribution because her adjusted gross income is greater than $60,000.
II)If Chelsea is married and covered by a qualified pension plan and her husband does not work, they can contribute and deduct $5,500 to two separate IRA accounts (one for herself and one for her husband).
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

IRA contribution and deduction limits are dependent on the individual's filing status, income, and retirement plan coverage, and they are subject to change each year. Therefore, Chelsea must check the current year's limits and phase-out ranges to determine her maximum contribution and deduction amounts correctly.

Step-by-step explanation:

Chelsea is an employee contemplating making contributions to her Individual Retirement Account (IRA). The rules for IRA contributions and deductions are based on several factors, including income levels, filing status, and whether the individual is covered by a retirement plan at work.

If Chelsea is single and covered by a qualified pension plan, she can only deduct her IRA contribution partially if her adjusted gross income (AGI) is over a certain threshold, which is updated annually by the IRS. In 2015, for example, the deduction begins to phase out at an AGI of $61,000 for single filers covered by a workplace retirement plan. Therefore, if her AGI is $64,000, Statement I may not be completely correct, because the deduction limit is not a fixed amount but is determined by the phase-out range.

As for Statement II, if Chelsea is married, filing jointly, and her husband is not covered by a workplace retirement plan, they are both allowed to contribute up to the IRA limit (which was $5,500 for 2014 and 2015) and deduct the full amount, provided their combined AGI falls within the permissible range for such deductions. This range is also subject to annual adjustments by the IRS.

However, since tax laws and contribution limits change over time, Chelsea should verify the current year's limits and phase-out ranges for IRA contributions, which could be different from past years like 2014 and 2015. It should also be noted that contribution and deduction limits mentioned for 2014 and 2015 may not apply for the current year.