REG MCQ – Adj & Ded 2 Arrive @ Tax Inc – Question #1098

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    latunsk2
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    I am confused as to how the question comes up with the correct answer.

    Spanos' AGI is $4,000 over the beginning of the $10,000 phaseout range. The way I understand the phaseout is that the Spanos' maximum deduction is reduced by 40%. Without phaseout, their MFJ status allows for a deduction of $11,000. Meaning $4,400 ($11,000 x 40%) of their deduction is phased out. Now considering that his wife is part of an employer plan none of her contributions to an IRA would be deductible (problem doesn't mentioned that she even made one) so their max deduction is back to $5,500 correct? Phase this amount out by the 40% and $2,200 ($5,500 x 40%) is disallowed. Subtract this from his max deduction for a total deduction of $3,300 ($5,500 – $2,200).

    This is the answer and calculation provided by the NINJA MCQ:

    Beginning in 1998, individuals are not considered participants in a company retirement plan simply because their spouses are. However, the maximum deductible IRA contribution for a nonparticipant spouse is phased out for couples with joint return adjusted gross incomes between $178,000 and $188,000. In this case, the Spanos' AGI is $4,000 over the beginning of the $10,000 phaseout range so their maximum $4,000 deduction is reduced by $800 ($4,000 × 2 ÷ 10) to arrive at $3,200.

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