[MasterGGM]

I am confused on how to calculate the phaseout. Can anyone please tell me how it works?

Rita Spano is an active participant in a company retirement plan. Her husband, John, age 45, works for a company that does not have a retirement plan. The Spanos’ joint adjusted gross income for 2014 is $185,000. John contributes $4,000 to an IRA for himself. How much of this $4,000 contribution for John can the Spanos deduct on their 2014 joint return?

A: $4000

B: $3200

C: $2000

D: $0

I thought it was 4000 * (4/10) = $2400 but apparently it is 4000 * (2/10). Why?

AUD - 77
BEC - 80
FAR - 76
REG - 83

Licensed CPA in CA as of Jan. 5, 2017

FAR: CREDIT
AUD: CREDIT
REG: CREDIT
BEC: CREDIT

[Gabe]

The phaseout is $183k, so the $185k is $2k over the limit. So 2/10*$4k= $3200. Hope this helps. If you have any more questions the REG study group up top is pretty helpful too!

CPA, CFE
CISA- Experience will be completed by August 2016

[MasterGGM]

Thank you @Gabe for the explanation.

The explanation Ninja gave used $181k-$191k numbers from 2014, which I assume are the ones that are going to be tested but gave the answer for the 2015 phaseout numbers.

AUD - 77
BEC - 80
FAR - 76
REG - 83

Licensed CPA in CA as of Jan. 5, 2017

FAR: CREDIT
AUD: CREDIT
REG: CREDIT
BEC: CREDIT

[Author]

Replies