- 1). Contribute to a pretax employer plan, such as a traditional 401k plan or traditional 403b plan. You do not have to report these contributions on your tax return because they are not included in your taxable wages for the year on your Form W-2.
- 2). Compare your modified adjusted gross income to the annual limits for deducting a traditional IRA contribution if either you or your spouse has access to an employer plan, such as a 401k or 403b (see Resources). If you are not covered, you can always deduct your traditional IRA contribution. Your modified adjusted gross income for the purposes of the traditional IRA deduction equals your adjusted gross income plus certain deductions including the student loan interest, tuition and fees, and the traditional IRA deduction. If your modified adjusted gross income is too high, you cannot reduce your tax burden with a traditional IRA contribution.
- 3). Contribute up to the maximum to your traditional IRA if you qualify to claim a deduction. As of 2011, the maximum contribution is $5,000 if you are under 50 and $6,000 if you are 50 or older.
- 4). Report your traditional IRA contribution as a deduction on your income tax return using Form 1040 or Form 1040A to reduce your tax burden by saving for retirement. The amount that you contribute to your traditional IRA decreases your total taxable income for the year.
Source...