How do Traditional IRA contributions impact my AGI calculation and tax due?

Your tax reduction actually makes sense. Here's why: The Traditional IRA contribution and capital loss deduction do reduce your AGI by $9,500 total, but the actual tax savings depends on your marginal tax rate. At your income level, you're likely in the 24% federal tax bracket (for 2024 taxes filed in 2025). A $9,500 reduction in taxable income at the 24% tax bracket would save you roughly $2,280 in taxes (9,500 × 0.24). However, there's another factor at play - at your income level, your Traditional IRA contribution is likely only partially deductible or possibly non-deductible, depending on whether you're covered by a retirement plan at work (which it sounds like you are with your 401k). The IRS phases out Traditional IRA deductibility for higher-income taxpayers who are covered by workplace retirement plans. This is probably why your tax reduction was less than expected.

I was stuck in a similar situation last year trying to understand my tax calculations. I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure everything out. It analyzes your tax documents and explains exactly how deductions like your Traditional IRA are affecting your tax calculation. I was confused about my retirement contributions too, and it highlighted that my IRA deduction was actually being phased out because of my income level - something I had no idea about! It saved me from making the same mistake this year.

Just wanted to follow up about my experience with taxr.ai since I was skeptical at first. I ended up trying it after continuing to be confused about my IRA deduction situation. The tool actually identified that I was making non-deductible Traditional IRA contributions for no benefit when I could have been doing a backdoor Roth IRA instead! It saved me from making the same mistake again and showed me exactly how to document the backdoor Roth properly on my taxes. Definitely worth checking out if you're trying to understand complex retirement account rules.

If you're still having trouble with the IRS or need clarification, you might want to try Claimyr (https://claimyr.com). I spent WEEKS trying to get through to an IRS agent about similar retirement account questions. With Claimyr, I got through to an actual IRS representative in less than 15 minutes! I was so confused about my IRA deduction that I needed to speak directly with the IRS, and their automated phone system was absolutely useless. Claimyr got me past all those frustrating menus and waiting. You can see how it works here: https://youtu.be/_kiP6q8DX5c

I need to apologize for calling Claimyr a scam. I was super skeptical but tried it after spending 3 hours on hold with the IRS yesterday and getting disconnected. I got through to an IRS agent in about 20 minutes using their service. The agent confirmed what others here suggested - at my income level (similar to yours), Traditional IRA contributions aren't deductible if you have a workplace retirement plan. They also explained Form 8606 for reporting non-deductible contributions, which I needed to file. Saved me from a potential audit headache!

Another thing to consider - make sure you're looking at the right number on your tax return. Your AGI (Adjusted Gross Income) is indeed reduced by the $3,000 capital loss, but the Traditional IRA deduction comes AFTER the AGI calculation to determine your taxable income. If you're looking at the AGI line of your return and wondering why it only went down by $3,000 instead of $9,500, that's why. The IRA deduction reduces taxable income, not AGI directly.

This happened to me too! Check if you completed Form 8606 for non-deductible IRA contributions. It's super important to file this form every year you make non-deductible contributions, otherwise you might end up paying taxes twice on that money.

This is a really common confusion! At your income level with workplace retirement plan coverage, you're likely hitting the Traditional IRA deductibility phase-out limits that others mentioned. One quick way to verify this: look at Line 20 on your Form 1040 (Traditional IRA deduction). If it shows $0 or less than $6,500, then your contribution wasn't fully deductible due to income limits. Since you made a non-deductible Traditional IRA contribution, you absolutely need to file Form 8606 to track your basis in the account. This is crucial for avoiding double taxation when you eventually withdraw. Given your income level, you might want to consider doing a backdoor Roth IRA conversion instead. You'd contribute to Traditional IRA (non-deductible), then immediately convert to Roth. This way you get the tax-free growth benefit of a Roth IRA despite being over the income limits for direct Roth contributions. Your $930 tax reduction ($1,200 - $270) makes perfect sense if only the $3,000 capital loss was deductible. At roughly 24% marginal rate, that's about $720 in tax savings, which aligns with what you're seeing.