How much can Fred deduct for his IRA contribution since he is not an active participant in a retirement plan?

When determining how much Fred can deduct for his IRA contribution, it's important to consider the rules governing traditional IRA contributions and deductions. Since Fred is not an active participant in a retirement plan with his employer, he is eligible to deduct the full amount of his traditional IRA contribution.

For the tax year 2023, individuals under the age of 50 can contribute up to $6,500 to their IRAs, and those aged 50 or older can contribute an additional $1,000, bringing the total deductible contribution for those individuals to $7,500. In this case, if Fred is 50 or older, he can make a full deductible contribution of $7,000 to his IRA.

This ability to fully deduct contributions without being subject to income limits due to non-participation in a workplace retirement plan is a significant advantage, allowing for a greater tax benefit. It supports retirement saving, especially for individuals who may not have access to employer-sponsored retirement plans.