Can I contribute to both a deductible and a nondeductible IRA in 2024?
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Yes, you can contribute to both a deductible and a nondeductible traditional IRA in 2024, but there are important limitations and rules to understand regarding how much you can contribute in total, and how the deductibility of your contributions is determined.
1. Annual Contribution Limit
For 2024, the total amount you can contribute to all of your traditional IRAs (deductible and nondeductible combined) and Roth IRAs is the lesser of:- $7,000 ($8,000 if you are age 50 or older by the end of 2024), or- Your taxable compensation for the year.
This limit applies to the sum of all contributions to traditional IRAs (regardless of whether they are deductible or nondeductible) and Roth IRAs. You cannot exceed this limit in aggregate.
2. Deductibility of Traditional IRA Contributions
Whether your traditional IRA contribution is deductible depends on your income, your filing status, and whether you (or your spouse) are covered by a retirement plan at work.
- If neither you nor your spouse is covered by a workplace retirement plan: Your entire traditional IRA contribution is deductible, regardless of income.
- If you (or your spouse) are covered by a workplace retirement plan: The deductibility of your traditional IRA contribution is subject to a phase-out based on your modified adjusted gross income (MAGI) and filing status.
For 2024, the phase-out ranges are:- Single or Head of Household: $77,000–$87,000- Married Filing Jointly (IRA contributor is covered): $123,000–$143,000- Married Filing Jointly (spouse is covered, contributor is not): $230,000–$240,000- Married Filing Separately (covered): $0–$10,000
If your MAGI is below the phase-out range, your contribution is fully deductible. If your MAGI is within the range, your deduction is partially reduced. If your MAGI is above the range, your contribution is not deductible.
3. Nondeductible Contributions
If you are not eligible to deduct all or part of your traditional IRA contribution due to the income limits above, you may still make a nondeductible contribution up to the annual limit. Nondeductible contributions are reported on Form 8606 and create a "basis" in your IRA, which is not taxed again when distributed.
4. Combining Deductible and Nondeductible Contributions
You may split your total traditional IRA contribution between deductible and nondeductible portions, depending on your eligibility. For example, if you are eligible to deduct only part of your contribution, you may deduct that portion and treat the remainder as nondeductible. The sum of both cannot exceed the annual limit.
Example:Suppose you are under age 50, your compensation is $10,000, and you are covered by a retirement plan at work. Your MAGI is $130,000 and you file jointly. For 2024, the deduction is phased out between $123,000 and $143,000. If your deduction is limited to $3,000, you may deduct $3,000 and treat the remaining $4,000 (to reach the $7,000 limit) as a nondeductible contribution.
5. Reporting Requirements
If you make any nondeductible contributions, you must file Form 8606 with your tax return for the year of the contribution. This form tracks your basis in traditional IRAs, which is important for determining the taxable and nontaxable portions of future distributions.
6. Other Considerations
- The total contribution limit applies to all IRAs (traditional and Roth) combined.
- Employer contributions to SEP or SIMPLE IRAs do not count toward your personal traditional IRA contribution limit.
- If you are married and file jointly, each spouse can contribute up to the limit to their own IRA, subject to compensation and income limits.
Summary: You may contribute to both a deductible and a nondeductible traditional IRA in the same year, as long as your total contributions do not exceed the annual limit. The deductibility of your contributions depends on your income, filing status, and participation in a workplace retirement plan. Any nondeductible contributions must be reported on Form 8606.
If you need help determining your deductible amount or how to allocate between deductible and nondeductible contributions, you may want to use the worksheets in IRS Publication 590-A or consult a tax professional.
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