CPA Exam — REG (Regulation)Federal Taxation of IndividualsEasy
A client, single, age 50, has an Adjusted Gross Income (AGI) of $80,000. They contributed $6,500 to a traditional IRA during the year. They are not covered by an employer-sponsored retirement plan. What is the maximum amount of their IRA contribution that is deductible for tax purposes?
- A$7,000
- B$0
- C$8,000
- D$6,500
Show answer & explanationAnswer & explanation
Correct answer: D. $6,500
Since the client is not covered by an employer-sponsored retirement plan, and their AGI is not a limiting factor for non-covered individuals, the full amount of their traditional IRA contribution, up to the annual limit plus catch-up contribution, is deductible.
Why the other options are wrong
- A. This represents the maximum contribution limit for someone age 50 or over ($6,000 regular + $1,000 catch-up), not the amount contributed.
- B. This would be incorrect as they are eligible for a deduction.
- C. This is an incorrect amount and does not align with IRA contribution rules.
Traditional IRA Deduction (Non-Covered)
Individuals not covered by an employer-sponsored retirement plan can generally deduct the full amount of their traditional IRA contributions, up to annual limits, regardless of AGI.
- Annual contribution limit applies ($6,500 for 2023, $7,000 for 2024).
- Catch-up contributions ($1,000) are allowed for those age 50 and over.
- Deduction is 'above-the-line' (reduces AGI).
Memory trick: IRA rules: Covered or Not? Age matters for extra slot.