How to Calculate Taxes on a Non-Deductible IRA Contribution

As of 2013, you can contribute up to $5,500 to a traditional IRA -- $6,500 if you're over 49 -- and write it off on your taxes. If you or your spouse are covered by a workplace retirement account, you can contribute just as much, but you don't always get a deduction.


Having a workplace plan by itself isn't a problem. It's only when combined with a high modified adjusted gross income (MAGI) that you lose your contribution tax break. Use the front of your 1040 to calculate your adjusted gross income. Next, use the worksheet in IRS Publication 590 to figure your MAGI. You do this by adding certain write-offs back to your AGI, for example anything you deducted for student-loan interest or college tuition and fees.

No Deduction

The IRS adjusts your MAGI's effect on your IRA contributions annually to reflect inflation. As of 2013, if you file jointly, have a workplace plan and your MAGI is $115,000 or above, you get no write-off for contributions to your IRA. If your spouse has a plan but you don't, the cut-off is $188,000. If you file separately, it's $10,000. If none of your contributions are deductible, everything you put in your IRA is taxable.

Partial Write-Off

If you have a workplace plan, file jointly and your MAGI is between $95,000 and $115,000, you get a partial deduction. Subtract $95,000 from your MAGI, multiple the result by 25 percent and subtract it from your contributions. For example, if your MAGI is $103,000, you subtract $2,000 from your total contributions. If you contributed less than $2,000 it's all deductible; if more, everything above $2,000 is non-deductible. You use the same method with different figures for other filing statuses.

Form 8606

Report your nondeductible contributions on Form 8606. If you've made any withdrawals, rollovers or conversions this year, you also use the form to figure out how much of them is taxable. As far as calculating tax on contributions, that's simple: just report the deductible part on your 1040. That leaves your nondeductible contributions as part of your regular income, taxed as usual. You don't have to worry about their effect on your taxes until you take them out again.

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