Question

While the maximum deductible contribution to a traditional IRA for an unmarried taxpayer under 50 is $6,000 in 2019, the deductible amount may be reduced based upon the taxpayer's (1) income for the year.

a) Modified
b) Total
c) Gross
d) Taxable

Answer 1

The deductible contribution to a traditional IRA may be reduced based on the taxpayer's modified adjusted gross income (MAGI). MAGI involves certain adjustments to the taxpayer's total income, which can affect IRA contribution deductions.

Step-by-step explanation:

The correct answer is (a) Modified. The maximum deductible contribution to a traditional IRA for an unmarried taxpayer under 50 is indeed $6,000 for the year 2019, but the deductible amount may be subject to phase-out based on the taxpayer's modified adjusted gross income (MAGI). The terminology is important because the IRS uses MAGI to determine eligibility for certain tax benefits. The MAGI is generally the taxpayer's total income with certain adjustments made, which may include deducting specific items such as student loan interest or tuition and fees. In the context of IRA contributions, if your MAGI exceeds certain levels, the amount you can deduct for your traditional IRA contributions decreases, and may eventually be reduced to zero. Therefore, understanding your MAGI is essential when planning for retirement savings and for accurately filing your taxes.