 TITLE: Do Retirement Accounts Affect Your Taxes? CONTENT: Traditional IRA\n---------------\nThe main thing to keep in mind if you're doing your taxes and have a traditional IRA is the tax breaks for contributions.\nIf you (or your spouse) are not covered by a retirement plan at work, you can take a full tax deduction on contributions made to a traditional IRA. The deduction amount depends on what's known as your modified adjusted gross income (MAGI). MAGI refers to your taxable income subtracted by certain deductions you're allowed to take.\nThe tax deductions you can claim for contributions to a traditional IRA may be limited if you (or your spouse) are covered by a retirement plan at work.\nFor 2020 and 2021, the amount you can contribute to all of your traditional and Roth IRAs can't exceed $6,000 if you're under 50 or $7,000 if you're over 50.\nFor the 2020 tax year, you can take the full deduction for your contribution limit if you're single and covered by a workplace retirement plan as long as your MAGI is less than $65,000. A partial deduction is possible if you make more than $65,000 but less than $75,000. Deductions for U.S. consumers in other groups, such as married couples, also depend on income.\nIf you're not covered by a workplace retirement plan and you're single, a head of household or a qualified widow or widower, you can take a full tax deduction up to your contribution limit no matter what your MAGI is. The same holds true if you're married and filing a joint return, and your spouse is also not covered by a workplace retirement plan. For married couples where one spouse is covered by a workplace plan, the deductions depend on their income.\nWhat about taxes on early withdrawals from a traditional IRA? If you're under 59½, you may be hit with a 10% IRS penalty for an early withdrawal, except in certain circumstances. For example, you may not be penalized if you withdraw money for a first-time home purchase. END