IRA Deduction

If you made contributions to a traditional IRA for 2008, you may be able to take an IRA deduction. But you, or your spouse if filing a joint return, must have had earned income to do so.

For IRA purposes, earned income includes alimony and separate maintenance payments reported on line 11. If you were a member of the U.S. Armed Forces, earned income includes any nontaxable combat pay you received. If you were self-employed, earned income is generally your net earnings from self-employment if your personal services were a material income-producing factor.

Traditional IRA contributions may be fully deductible, partly deductible, or not deductible at all, depending on whether you (and your spouse) have retirement coverage where you work and if so, whether your income subjects you to the deduction phaseout rules. Contributions to Roth IRAs are not deductible.

Money Saving Tip. For 2008, the contribution limit for both traditional and Roth IRAs is $5,000. Taxpayers who are age 50 or older are allowed to contribute $6,000.

If you were age 701/2 or older at the end of 2008, you cannot deduct any contributions made to your traditional IRA or treat them as nondeductible contributions.

Contribution deadline

You have until April 15, 2009, to make deductible or nondeductible IRA contributions for 2008. You must make your contribution by April 15, 2009, even if you get an extension to file your return.

Were You Covered by a Retirement Plan?

If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, SEP, SIMPLE, etc.) at work or through self-employment, your IRA deduction may be reduced or eliminated. But you can still make contributions to an IRA even if you cannot deduct them.

If you made any nondeductible contributions to a traditional individual retirement arrangement (IRA) for 2008, you must report them on Form 8606.