Rhonda and Ralph are married. Rhonda earns $81,000 annually, and Ralph earns $6,000 annually working part-time. Their AGI is $108,000. Rhonda participates in an employer-sponsored retirement plan. Ralph's company does not have a pension plan. Rhonda and Ralph contribute the maximum amount allowable annually to their IRAs. What is their allowable deduction for this year's contributions?

Question

Quizplus · Accepted Answer

Rhonda's participation in an employer-sponsored retirement plan limits the deduction for traditional IRA contributions. For 2021, if their AGI is between $105,000 and $125,000, the allowable deduction for their combined contributions is reduced. Since their AGI is $108,000, their deduction is reduced by a portion of $5,000, which is calculated as ($125,000-$108,000)/$20,000 x $6,000 (the maximum contribution for someone under age 50 who is not covered by a retirement plan at work). Therefore, their allowable deduction is $5,500 (($6,000 x 2) - $5,000 = $7,000 - $1,500).

Rhonda and Ralph Are Married