$10K Income Could Eliminate Your IRA Deduction When Filing Separately

Starting and participating in a A traditional IRA is a common approach for amassing retirement funds. , owing to two key advantages: tax incentives and greater contribution caps than those offered by most other retirement savings vehicles. Nevertheless, spouses filing separate returns should carefully monitor their income thresholds because relatively small amounts of money might substantially affect their eligibility for claiming a tax deduction.

How Traditional IRA contributions function

A major advantage of a traditional IRA is that your contributions could be entirely tax-deductible based on your situation. This allows you not to incur taxes at present but rather delay them until withdrawal times during retirement. This can be particularly appealing for those anticipating being in a lower tax bracket post-retirement, which might lessen their total tax liability.

In 2025, the contribution caps have seen a minor boost: people younger than 50 years old can now deposit up to $7,000, whereas those who are 50 and older have an allowance of up to $8,000. Moreover, should one partner in a couple not earn income, they may still establish a spousal Individual Retirement Account (IRA). This enables partners to potentially increase their collective retirement funds, as long as their joint contributions stay within the limit of their aggregate taxable earnings for the same year.

An additional benefit is the ability to make contributions to a traditional IRA for a specific tax year all the way up to Tax Day (usually April 15) of the subsequent year. This provides contributors with more time than most other retirement savings options typically offer.

The effect of submitting individual tax returns on your deductions

Nevertheless, submitting separate tax returns as a married couple has notable restrictions when it comes to deducting IRA contributions. The IRS guidelines state:

• Should your Modified Adjusted Gross Income (MAGI) be $10,000 or lower, you might be eligible for a limited tax deduction on contributions made to your traditional IRA.
• Should your Modified Adjusted Gross Income surpass $10,000, you won’t be eligible for any deductions whatsoever.

This implies that making slightly more than $10,000 could entirely negate your capability to take deductions for IRA contributions, thereby eliminating one of the key tax benefits that attract numerous savers to these accounts.

When married couples opt for the "married filing separately" status, they may find that a modest income level could eliminate significant potential tax benefits. These individuals should meticulously strategize their planning process, perhaps looking into alternative methods of saving for retirement or assessing if a Roth IRA, which operates under distinct guidelines, would serve them better.

Check:

Who is eligible for a complete IRA deduction in 2025? Review the income thresholds.

How much does an IRA plan charge for early withdrawals? (and for not withdrawing after age 73)