The IRA deduction for tax purposes is one of the biggest perks to investing in a traditional IRA. The question is whether you will actually be able to deduct all of the money you contribute in a given year. There are some rules that will determine this on an individual basis.
The biggest rule to be familiar with involves other types of retirement plans that you may be a participant in. If you are participating in any type of retirement investment plan through your employer, then chances are you will not be able to deduct all of your contributions to a traditional IRA plan.
The best case scenario is to open a traditional IRA and not participate in other plans offered through your employer. This enables you to qualify as a non-participant and get the tax deduction or the total amount you contribute over the course of the year.
If on the other hand you do participate in another plan through your employer, your contributions will not be tax deductible. Since this deduction is the real value of the traditional IRA, many people are now contributing to a Roth IRA rather than the traditional in this case.
Roth IRA contributions are not deductible and are limited based on maximum amounts set by the IRS and your income. If you make less than $100, 000 a year, then you do not have to worry about phasing out of the plan where you are not allowed to contribute to a Roth at all.
If you can qualify for the IRA deduction with a traditional plan, it is the best way to invest your money for retirement. Your money essentially comes back into your hands eventually, allowing you to save considerably more on your own. Though you'll need to consider the IRA withdrawal rules when the time comes.
The benefits of your employer-offered plans must carefully be weighed against the deduction benefit to ensure the right choice is made here.