@ Gabe, going back to IRA question posted earlier….looking into this question has been fun, and I don't clearly understand it yet. So looking for more help.
I found the example in 2013 Becker book where an active participant single taxpayer has AGI of 61,000. The phaseout threshold for single being (59,000-69,000). Took excess of ($61-$59K)/10,000 (the phaseout range), gives a 20% phase out percentage. Take max allowed $5000 x 20% = $1000. So max deduction is decreased $5000-$1000 = $4000.
So…if we apply this to Rita Spano below….I don't come up with the same answer. The excess $4000/$10000 range gives a 40% phase out percentage. Taking $4000 x 40% = 1600. So I would think to lower max allowed deduction to $4000-1600 = $2400….but this is not even an answer choice….
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.
$4,000
B.
$3,200
C.
$2,000
D.
$0
Anyone know how they are calculating this?!
Here is the answer:
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 $181,000 and $191,000. 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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