FEDTAX * IRS * HOME * PUB_590

Publication 590
Individual Retirement Arrangements (IRAs)

For use in preparing 2002 Returns
APPENDIX B. (Continued)
Comprehensive Example
Determining Your Traditional IRA Deduction and
the Taxable Portion of Your Social Security Benefits
  John Black is married and files a joint return. He is 65 years old and had 2002 wages of $53,500. His wife did not work in 2002. He also received social security benefits of $7,000 and made a $3,500 contribution to his traditional IRA for the year. He had no foreign income, no tax-exempt interest, and no adjustments to income on lines 23 through 33 on his Form 1040. He participated in a section 401(k) retirement plan at work.   John completes worksheets 1 and 2. Worksheet 2 shows that his 2002 IRA deduction is $1,600. He must either withdraw the contributions that are more than the deduction (the $1,900 shown on line 8 of Worksheet 2), or treat the excess amounts as nondeductible contributions (in which case he must complete Form 8606 and attach it to his Form 1040).   The completed worksheets that follow show how John figured his modified AGI to determine the IRA deduction and the taxable social security benefits to report on his Form 1040.
Worksheet 1
Computation of Modified AGI
(For use only by taxpayers who receive social security benefits)
Filing Status - Check only one box: Check Box A. Married filing jointly [ ] B. Single, Head of Household, Qualifying Widow(er), or Married filing separately and lived apart from your spouse during the entire year [ ] C. Married filing separately and lived with your spouse at any time during the year
1. Adjusted gross income (AGI) from Form 1040 or Form 1040A (not taking into account any social security benefits from Form SSA-1099 or RRB-1099, any deduction for contributions to a traditional IRA, any student loan interest deduction, any tuition and fees deduction, or any exclusion of interest from savings bonds to be reported on Form 8815) $53,500
2. Enter the amount in box 5 of all Forms SSA-1099 and Forms RRB-1099 7,000
3. Enter one half of line 2 3,500
4. Enter the amount of any foreign earned income exclusion, foreign housing exclusion, U.S. possessions income exclusion, exclusion of income from Puerto Rico you claimed as a bona fide resident of Puerto Rico, or exclusion of employer-paid adoption expenses 0
5. Enter the amount of any tax-exempt interest reported on line 8b of Form 1040 or 1040A 0
6. Add lines 1, 3, 4, and 5 57,000
7. Enter the amount listed below for your filing status.
  • $32,000 if you checked box A above
  • $25,000 if you checked box B above
  • $0 if you checked box C above.
32,000
8. Subtract line 7 from line 6. If zero or less, enter 0 on this line 25,000
9. If line 8 is zero, STOP HERE. None of your social security benefits are taxable. If line 8 is more than 0, enter the amount listed below for your filing status.
  • $12,000 if you checked box A above.
  • $9,000 if you checked box B above.
  • $0 if you checked box C above.
12,000
10. Subtract line 9 from line 8. If zero or less, enter 0 13,000
11. Enter the smaller of line 8 or line 9 12,000

NEXT PAGE>