Question
Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2020. He also received rental income of $5,000 and dividend income of
Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2020. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can deduct for contributions to his and his wife's individual retirement accounts for the 2020 tax year? You may assume that neither taxpayer is an active participant in another qualified retirement plan.
a.$5,500
b.$6,000
c.$11,000 incorrect
d.$12,000
e. None of these choices are correct.
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There are two principal types of IRAs in the U.S. tax law. One is the traditional IRA and the other is the Roth IRA. Annual contributions to a traditional IRA are deductible, and retirement distributions are taxable. Annual contributions to a Roth IRA are not deductible, and retirement distributions are nontaxable. A contribution may be made to a spouse's IRA, even if the spouse has no earned income. There are annual contribution limits for both traditional and Roth IRAs.
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