Question

Michael earned $20,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA, but the amount is dependent on whether it reduces his taxable income. If Michael is going to claim the standard deduction, will a contribution to a traditional IRA reduce his taxable income? Explain.

Answer 1

Answer:

The answer is: Yes, his contribution will reduce his AGI.

Explanation:

Traditional IRA contributions are deductible from Michael's adjusted gross income (AGI), so they will reduce his taxable income. Also, traditional IRA contributions don't have any impact on Michael's standard deductions or if he chooses, itemized deductions.