2020 is in the rearview mirror but there is still time to reduce your taxable income for last year:
Make a tax-deductible contribution to your IRA.
If you qualify, an IRA contribution can be a great way to reduce your 2020 taxes. You are allowed to contribute up to $6,000, or even more if you are an old-timer like me: $7,000 for people age 50 and over. You basically just have to be still working (have earned income) to qualify to make an IRA contribution.
Plus, if you are married, you can double up the amount with a spousal IRA.
If you are not covered by a retirement plan at work, you can deduct the full amount of your contribution, regardless of how much money you make.
If you do have a retirement plan at work, there are restrictions and limitations to qualify for the full deduction. Here’s a table that summarizes these rules. They are confusing so feel free to shoot me an email with any questions.
2020 Traditional IRA deduction limits
| Filing Status | Modified adjusted gross income (MAGI) | Deduction Limit |
| Single individuals | ≤ $65,000 | Full deduction up to the amount of your contribution limit |
| > $65,000 but < $75,000 | Partial deduction | |
| ≥ $75,000 | No deduction | |
| Married (filing joint returns) | ≤ $104,000 | Full deduction up to the amount of your contribution limit |
| > $104,000 but < $124,000 | Partial deduction | |
| ≥ $124,000 | No deduction | |
| Married (filing separately)* | Not eligible | Full deduction up to the amount of your contribution limit |
| < $10,000 | Partial deduction | |
| ≥ $10,000 | No deduction |
If you’re self-employed, you can sock away a lot more by opening up a Simplified Employee Pension (SEP) plan before filing your taxes. For 2020, you can contribute up to $57,000, depending on your income.
Let me know if you have any questions!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
