LIMITS ON DEDUCTING CONTRIBUTIONS IF YOU ARE MARRIED AND FILING JOINTLY

For married couples who file jointly, limits on deducting contributions depend on whether the IRA holder is covered by an employee retirement plan.

For a couple who files a joint tax return and who is also covered by an employer plan, the phase-out begins at $65,000 in 2004 and rises to $80,000 in 2007. As with single filers, each $50 of income reduces the deductibility of contributions by $10, so that at $10,000 above the phase-out point, deductibility falls to $0. However, in 2007, the $50 increments just described will change to $100 increments. Thus, a married couple filing jointly and making $100,000 or more in 2007 will not be able to deduct anything at all.

If just one spouse is covered by an employer plan, that spouse is subject to the rules above. The spouse not covered has a phase-out point beginning at $150,000 of joint adjusted gross income. Deductibility is reduced by $10 for each $50 of extra AGI.

Because the income growth that an IRA makes is tax-deferred, financial advisors often suggest putting as much as legally possible into your IRA, no matter how much you are allowed to deduct from your taxes. The extent of deductibility does not affect the tax-free status of your IRA's earnings.

Speaking of taxes, let us now go to the next screen to learn how they are applied to IRAs.