Even though we are well into 2010, it s still not too late to make a traditional IRA contribution for the 2009 tax year if you ve not already done so. The contribution deadline is April 15. If you qualify for a deductible contribution, you can lower last year s tax bill by taking action by then. You may also qualify to make a deductible contribution for the 2010 tax year, which you can do anytime between now and April 15, 2011. Here s the scoop on traditional IRA contributions.

1. If You Expect Lower Tax Rates in Retirement, Deductible Traditional IRA Contributions Are Good (If You Qualify)
With a deductible traditional IRA contribution, you can effectively finance part of your pay-in with the current tax savings. Cool! However, if you expect to pay the same or higher tax rates during your retirement years, you re probably better off making a nondeductible contribution to a Roth IRA (assuming you qualify). With a Roth account, the tax-saving payoff comes at the back end when you become eligible for tax-free withdrawals during retirement.

2. Contributions Are Limited, and Earned Income Is Required
The absolute maximum amount you can contribute for any tax year to a traditional IRA is the lesser of: (1) your earned income for that year or (2) the annual contribution limit for that year. Basically, earned income means wage and salary income (including bonuses), alimony received, and self-employment income.

For both 2009 and 2010, the annual contribution limit is $5,000 or $6,000 if you re age 50 or older as of year-end.

If you re a married joint-filer, both you and your spouse may be able to make deductible contributions to your own separate accounts. For purposes of the aforementioned earned income limitation, you can add your earned income to that of your spouse. For example, say your joint earned income and adjusted gross income (AGI) is $80,000, but none of that was earned by your spouse. No problem. You can make a $5,000 deductible traditional IRA contribution $6,000 if you re age 50 or older. Your spouse can do the same by contributing to his or her separate account. All is well because your combined earned income ($80,000) exceeds your combined contributions ($12,000 at most).

3. After Age 70 1/2, Contributions Are Off Limits
You can t make a traditional IRA contribution for the year when you turn 70 or for any subsequent year. However as long as you have earned income, you re potentially eligible for Roth contributions. Age is not a factor for them.

4. Deductible Contribution Privilege Can Vanish as Income Goes Up
Assuming you have enough earned income, you can always contribute up to $5,000 to a traditional IRA, or $6,000 if you re age 50 or older. You can do this for both 2009 and 2010. The real question is: Will your contributions be deductible? The answer depends on whether you participate in a tax-favored retirement plan and your income. The rather complicated eligibility rules for deductible contributions go like this:

Unmarried folks
If you re unmarried and were an active participant in a tax-favored retirement plan through your job or self-employment in 2009, your eligibility to make a 2009 deductible contribution to a traditional IRA is phased out (reduced or eliminated) between modified adjusted gross income (MAGI) of $55,000 and $65,000. For 2010, the phase-out range is $56,000 to $66,000.

If you re not an active retirement plan participant for the year in question, the phase-out rule is not applicable. You can make deductible contributions no matter how high your income.

Married joint-filers
If you re a married joint-filer and both you and your spouse were active retirement plan participants in 2009, you and your spouse s eligibility to make deductible 2009 traditional contributions to your respective accounts is phased out between joint MAGI of $89,000 and $109,000. For 2010, the same phase-out range applies.

If neither you nor your spouse is an active participant for the year in question, the phase-out rule is not applicable. You can make deductible contributions no matter how high your income.

If only one spouse was an active participant in 2009, the participating spouse s eligibility to make a deductible 2009 traditional IRA contribution is phased out between joint MAGI of $89,000 and $109,000. Ditto for 2010. For 2009, the non-participating spouse s deductible contribution privilege is phased out between joint MAGI of $166,000 and $176,000. For 2010, the phase-out range is $167,000 to $177,000.

Figuring your MAGI
You start off with the adjusted gross income number from the last line on page 1 of your Form 1040. Then you add back several tax breaks, only some of which may apply to you. This is all taken into account if you use the worksheet on pages 31 and 32 of your Form 1040 package to calculate your deductible traditional IRA contribution amount (if any).

5. Nondeductible Contributions Are an Option to Consider
the phase-out rules. If not, consider the last resort of making a nondeductible traditional IRA contribution. At least you can defer taxes on the resulting earnings. Not a great deal, but better than nothing.

6. Tax Return Considerations
On your 2009 Form 1040, report any deductible traditional IRA contributions on page 1, line 32. If you make any nondeductible contributions, they are not reported on the Form 1040 itself, but you must file Form 8606 (Nondeductible IRAs) with your return. Form 8606 keeps track of your cumulative nondeductible contributions, which is a good thing because they count as tax-free amounts when they are withdrawn.