Modified AGI limit for traditional IRA contributions increased. For 2007, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

If you lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $156,000 but less than $166,000. If your modified AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? later.

Modified AGI limit for Roth IRA contributions increased. For 2007, your Roth IRA contribution limit is reduced (phased out) in the following situations.

See Can You Contribute to a Roth IRA? later.

Rollover by nonspouse beneficiary. A direct transfer from a deceased employee's qualified pension, profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (section 403(b)) plan, or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. The IRA is treated as an inherited IRA. For more information about rollovers, see Rollovers in Publication 590.

Qualified health savings account (HSA) funding distribution. If you are covered by a high deductible health plan (HDHP), you may be able to make a nontaxable HSA funding distribution from your IRA (other than a SEP or SIMPLE IRA) that would otherwise be included in income. The distribution must be a direct trustee-to-trustee transfer to an HSA. The distribution will be nontaxable to the extent it is not more than the limit on your annual HSA contributions. Generally, you can make only one nontaxable HSA funding distribution during your lifetime. However, if you change your HDHP coverage from self-only to family, you may be able to make an additional distribution during the same year. For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Catch-up contributions in certain employer bankruptcies. If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy in an earlier year, you may be able to contribute up to $7,000 to your IRA. For more information, see Catch-up contributions in certain employer bankruptcies in Publication 590.

Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2008 will be increased to the smaller of the following amounts:

If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:

For more information, see How Much Can Be Contributed? later.

Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:

If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:

However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later.

Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? later.

Modified AGI limit for Roth IRA contributions increased. For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations.

See Can You Contribute to a Roth IRA? later.

Rollovers from other retirement plans. For 2008, you can roll over amounts from an eligible retirement plan into a Roth IRA. For more information, see Rollovers from other retirement plans in chapter 2 of Publication 590.

Statement of required minimum distribution. If a minimum distribution is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. The report or offer must include the date by which the amount must be distributed. The report is due January 31 of the year in which the minimum distribution is required. It can be provided with the year-end fair market value statement that you normally get each year. No report is required for IRAs of owners who have died.

IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your tax return as tax-exempt interest.

Form 8606.  If you make nondeductible contributions to a traditional IRA and you do not file Form 8606, Nondeductible IRAs, with your tax return, you may have to pay a $50 penalty.

Hurricane tax relief. Special rules apply to the use of retirement funds (including IRAs) by qualified individuals who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. While qualified hurricane distributions can no longer be made, special rules apply to the repayments of these distributions. See Hurricane-Related Relief in chapter 4 of Publication 590.

An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement.

This chapter discusses the following topics.

Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590.

For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions for 2008, see Publication 590.

In this chapter the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA.” Two advantages of a traditional IRA are:

How Much Can Be Contributed?

There are limits and other rules that affect the amount that can be contributed to a traditional IRA. These limits and other rules are explained below.

Community property laws.   Except as discussed later under Spousal IRA limit, each spouse figures his or her limit separately, using his or her own compensation. This is the rule even in states with community property laws.

Brokers' commissions.   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit.

Trustees' fees.   Trustees' administrative fees are not subject to the contribution limit.

Qualified reservist repayments.   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement.

  For more information, see Qualified reservist repayments under How Much Can Be Contributed in chapter 1 of Publication 590.

Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. (See Roth IRAs, later.)

General limit.   For 2007, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts.

• $4,000 ($5,000 if you are 50 or older).

• Your taxable compensation (defined earlier) for the year.

This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. (See Nondeductible Contributions, later.) Qualified reservist repayments do not affect this limit.

Example 1.

Betty, who is 34 years old and single, earned $24,000 in 2007. Her IRA contributions for 2007 are limited to $4,000.

Example 2.

John, an unmarried college student working part time, earned $3,500 in 2007. His IRA contributions for 2007 are limited to $3,500, the amount of his compensation.

Catch-up contributions in certain employer bankruptcies.   If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy in an earlier year, you may be able to contribute an additional $3,000 to your IRA. See Publication 590 to see if you qualify to make these additional contributions. If you qualify and chose to make these catch-up contributions, the higher contribution and deduction limits for individuals who are age 50 or older do not apply. The most that you can contribute to your IRA is $7,000.

Spousal IRA limit.   For 2007, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts.

1. $4,000 ($5,000 if you are 50 or older).

2. The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts.

   1. Your spouse's IRA contribution for the year to a traditional IRA.

   2. Any contribution for the year to a Roth IRA on behalf of your spouse.

This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $8,000 ($9,000 if only one of you is 50 or older, or $10,000 if both of you are 50 or older).

How Much Can You Deduct?

Generally, you can deduct the lesser of:

• The contributions to your traditional IRA for the year, or

• The general limit (or the spousal IRA limit, if it applies).

However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. See Limit If Covered by Employer Plan, later.

You may be eligible to claim a credit for contributions to your traditional IRA. For more information see chapter 37.

Trustees' fees.   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). See chapter 28.

Brokers' commissions.   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits.

Full deduction.   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of the following amounts.

• $4,000 ($5,000 if you are 50 or older in 2007, or $7,000 for certain employer bankruptcies).

• 100% of your compensation.

This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf.

Spousal IRA.   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts.

1. $4,000 ($5,000 if you are 50 or older in 2007, or $7,000 for certain employer bankruptcies).

2. The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts.

   1. The IRA deduction for the year of the spouse with the greater compensation.

   2. Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation.

   3. Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation.

This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation.

Note.

If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. After a divorce or legal separation, you can deduct only contributions to your own IRA. Your deductions are subject to the rules for single individuals.

Covered by an employer retirement plan.   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. This is discussed later under Limit If Covered by Employer Plan. Limits on the amount you can deduct do not affect the amount that can be contributed. See Nondeductible Contributions, later.

Are You Covered by an Employer Plan?

The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The “Retirement plan” box should be checked if you were covered.

Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered, later.

If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer.

Federal judges.   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan.

For Which Year(s) Are You Covered?

Special rules apply to determine the tax years for which you are covered by an employer plan. These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan.

Tax year.   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. For almost all people, the tax year is the calendar year.

Defined contribution plan.   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year.

  A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans.

Defined benefit plan.   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you:

• Declined to participate in the plan,

• Did not make a required contribution, or

• Did not perform the minimum service required to accrue a benefit for the year.

  A defined benefit plan is any plan that is not a defined contribution plan. Defined benefit plans include pension plans and annuity plans.

No vested interest.   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual.

Situations in Which You Are Not Covered

Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below.

Social security or railroad retirement.   Coverage under social security or railroad retirement is not coverage under an employer retirement plan.

Benefits from a previous employer's plan.   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan.

Reservists.   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. You are not covered by the plan if both of the following conditions are met.

1. The plan you participate in is established for its employees by:

   1. The United States,

   2. A state or political subdivision of a state, or

   3. An instrumentality of either (a) or (b) above.

2. You did not serve more than 90 days on active duty during the year (not counting duty for training).

Volunteer firefighters.   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. You are not covered by the plan if both of the following conditions are met.

1. The plan you participate in is established for its employees by:

   1. The United States,

   2. A state or political subdivision of a state, or

   3. An instrumentality of either (a) or (b) above.

2. Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement.

Limit If Covered by Employer Plan

If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status.

Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. These amounts vary depending on your filing status.

To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. See Filing status and Modified adjusted gross income (AGI) , later. Then use Table 17-1 or 17-2 to determine if the phaseout applies.

Social security recipients.   Instead of using Table 17-1 or 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply.

• You received social security benefits.

• You received taxable compensation.

• Contributions were made to your traditional IRA.

• You or your spouse was covered by an employer retirement plan.

Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits.

Deduction phaseout.   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1.

Table 17-1. Effect of Modified AGI ¹ on Deduction if You Are Covered by Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is...		AND your modified AGI is...		THEN you can take...
single or head of household		$52,000 or less		a full deduction.
		more than $52,000 but less than $62,000		a partial deduction.
		$62,000 or more		no deduction.
married filing jointly or qualifying widow(er)		$83,000 or less		a full deduction.
		more than $83,000 but less than $103,000		a partial deduction.
		$103,000 or more		no deduction.
married filing separately 2		less than $10,000		a partial deduction.
		$10,000 or more		no deduction.

1Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI) .

2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column).

If your spouse is covered.   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2.

Table 17-2. Effect of Modified AGI ¹ on Deduction if You Are NOT Covered by Retirement Plan at Work

If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction .

IF your filing status is...		AND your modified AGI is...		THEN you can take...
single, head of household, or qualifying widow(er)		any amount		a full deduction.
married filing jointly or separately with a spouse who is not covered by a plan at work		any amount		a full deduction.
married filing jointly with a spouse who is covered by a plan at work		$156,000 or less		a full deduction.
		more than $156,000 but less than $166,000		a partial deduction.
		$166,000 or more		no deduction.
married filing separately with a spouse who is covered by a plan at work 2		less than $10,000		a partial deduction.
		$10,000 or more		no deduction.

1Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI) .

2You are entitled to the full deduction if you did not live with your spouse at any time during the year.

Filing status.   Your filing status depends primarily on your marital status. For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. If you need more information on filing status, see chapter 2.

Lived apart from spouse.   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single.

Modified adjusted gross income (AGI).   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. If you made contributions to your IRA for 2007 and received a distribution from your IRA in 2007, see Publication 590.

  

Do not assume that your modified AGI is the same as your compensation. Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions.

Form 1040.   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts.

• IRA deduction.

• Student loan interest deduction.

• Tuition and fees deduction.

• Domestic production activities deduction.

• Foreign earned income exclusion.

• Foreign housing exclusion or deduction.

• Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 (For Filers With Qualified Higher Education Expenses).

• Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses.

This is your modified AGI.

Form 1040A.   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts.

• IRA deduction.

• Student loan interest deduction.

• Tuition and fees deduction.

• Exclusion of qualified savings bond interest shown on Form 8815.

This is your modified AGI.

Both contributions for 2007 and distributions in 2007.   If all three of the following apply, any IRA distributions you received in 2007 may be partly tax free and partly taxable.

• You received distributions in 2007 from one or more traditional IRAs.

• You made contributions to a traditional IRA for 2007.

• Some of those contributions may be nondeductible contributions.

If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590.

  If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1 in this chapter.

  

How to figure your reduced IRA deduction.   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead.

Reporting Deductible Contributions

If you file Form 1040, enter your IRA deduction on line 32 of that form. If you file Form 1040A, enter your IRA deduction on line 17. You cannot deduct IRA contributions on Form 1040EZ.

Worksheet 17-1. Figuring Your Modified AGI

Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes.

1.	Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22	1.
2.	Enter any traditional IRA deduction from Form 1040, line 32, or Form 1040A, line 17	2.
3.	Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18	3.
4.	Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19	4.
5.	Enter any domestic production activities deduction from Form 1040, line 35	5.
6.	Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18	6.
7.	Enter any foreign housing deduction from Form 2555, line 50	7.
8.	Enter any excludable savings bond interest from Form 8815, line 14	8.
9.	Enter any excluded employer-provided adoption benefits from Form 8839, line 30	9.
10.	Add lines 1 through 9. This is your Modified AGI for traditional IRA purposes	10.