IRA Traditional IRA Tax Rules and Deductibility 2 — Questions and Answers
Question 1: For 2024, at what modified adjusted gross income (MAGI) does the traditional IRA deductibility phase-out begin for a single filer covered by a workplace retirement plan?
- $60,000
- $73,000
- $77,000 (Correct answer)
- $87,000
Correct answer: $77,000
For 2024, the deductibility phase-out for single filers covered by a workplace plan begins at $77,000 MAGI and is fully phased out at $87,000.
Question 2: For 2024, a married person filing jointly who is NOT covered by a workplace plan but whose spouse IS covered faces a deductibility phase-out range of:
- $123,000–$143,000
- $183,000–$193,000
- $206,000–$246,000
- $230,000–$240,000 (Correct answer)
Correct answer: $230,000–$240,000
For 2024, the non-covered spouse's IRA deductibility phases out between $230,000 and $240,000 MAGI when the other spouse participates in a workplace plan.
Question 3: A married individual filing separately who is covered by a workplace retirement plan faces a deductibility phase-out range starting at:
- $0 (Correct answer)
- $25,000
- $50,000
- $73,000
Correct answer: $0
Married individuals filing separately who are covered by a workplace plan have a phase-out range of $0 to $10,000, making full deductibility nearly impossible.
Question 4: Which type of income qualifies as earned income for traditional IRA contribution purposes?
- Dividend income
- Capital gains distributions
- Rental income
- Self-employment net earnings (Correct answer)
Correct answer: Self-employment net earnings
Net self-employment earnings count as earned income for IRA contribution purposes, while passive income such as dividends, capital gains, and rent do not.
Question 5: Under the Tax Cuts and Jobs Act, alimony received from divorce agreements finalized after December 31, 2018 is treated as:
- Earned income eligible for IRA contributions
- Not earned income for IRA contribution purposes (Correct answer)
- Earned income only if the payer elects it
- Partially earned income up to $6,000
Correct answer: Not earned income for IRA contribution purposes
Alimony from post-2018 divorce agreements is no longer deductible by the payer or included in the recipient's income, so it does not count as earned income for IRA purposes.
Question 6: A recharacterization of an IRA contribution allows you to:
- Withdraw IRA funds tax-free after age 55
- Change a Roth IRA contribution to a traditional IRA contribution (or vice versa) (Correct answer)
- Roll over a 401(k) into an IRA penalty-free
- Delay required minimum distributions by five years
Correct answer: Change a Roth IRA contribution to a traditional IRA contribution (or vice versa)
A recharacterization lets you treat a contribution made to one type of IRA as if it were made to the other type, subject to IRS rules and deadlines.
Question 7: Which of the following does NOT count as earned income for purposes of making an IRA contribution?
- Wages from a part-time job
- Net profit from a sole proprietorship
- Interest and dividend income (Correct answer)
- Taxable combat pay elected by a military member
Correct answer: Interest and dividend income
Interest and dividend income are considered investment income, not earned income, and therefore cannot be used as the basis for an IRA contribution.
IRA Traditional IRA Tax Rules and Deductibility 2
For 2024, at what modified adjusted gross income (MAGI) does the traditional IRA deductibility phase-out begin for a single filer covered by a workplace retirement plan?