Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

When is an individual eligible to make tax-deductible contributions to a Traditional IRA?

1. When their income exceeds the limit

2. When they are covered by an employer-sponsored plan

3. When not covered by an employer-sponsored plan and below the income limit

4. Regardless of coverage, at age 50 or older

The correct answer is: When not covered by an employer-sponsored plan and below the income limit

An individual is eligible to make tax-deductible contributions to a Traditional IRA primarily when they are not covered by an employer-sponsored plan and their income is below a specified limit. This means that taxpayers who do not have access to an employer's retirement plan can contribute the full amount to a Traditional IRA without worrying about income limitations impacting their tax deduction. If the person is covered by an employer-sponsored plan, the tax deductibility of their contributions can be limited based on their modified adjusted gross income (MAGI). Therefore, being both not covered by an employer-sponsored plan and earning below the income limit allows the full tax deduction benefit, which is a key aspect of encouraging retirement savings for those who may not have other options. The other scenarios presented do not create eligibility for full tax-deductible contributions to a Traditional IRA. For example, individuals whose income exceeds the limits set for tax-deductible contributions face a deduction phase-out. Similarly, those covered under an employer-sponsored plan are subject to different income limits for deductibility, and merely being age 50 or older does not automatically grant eligibility regardless of other factors. Hence, the correct answer emphasizes the importance of not being covered by an employer plan and being under the income limit for full tax-deduct