Traditional IRA Deductibility: Income Limits When You Have a 401(k)

If you have a workplace retirement plan like a 401(k) or pension, your traditional IRA deduction phases out above certain income thresholds. The modified adjusted gross income (MAGI) phase-out ranges determine whether your contribution is fully deductible, partially deductible, or not deductible at all—even though you can still contribute to the IRA.

The deductibility rule: income level matters

The traditional IRA deduction is not guaranteed. If you have access to a workplace retirement plan—including a 401(k), 403(b), Roth 401(k), SEP-IRA, or defined-benefit pension—your income determines how much of your annual contribution is tax-deductible.

The tax code doesn’t prohibit contributing to a traditional IRA if you have a workplace plan. Instead, it reduces the deductible portion as your modified adjusted gross income (MAGI) rises. If your income is high enough, the entire contribution becomes non-deductible—but the money still goes into the IRA and can grow tax-deferred until withdrawal.

Modified adjusted gross income (MAGI) and the phase-out range

MAGI is your adjusted gross income (AGI) with certain deductions added back. The IRS defines MAGI differently for different purposes. For traditional IRA deductibility, MAGI typically includes:

• Wages and self-employment income
• Interest and dividends
• Capital gains
• IRA distributions
• (Certain other items, depending on your situation)

But it excludes contributions to the IRA itself.

The phase-out range is the MAGI band within which your deduction shrinks dollar-for-dollar. Below the range, your deduction is fully available. Above the range, it’s zero.

For 2026 (approximate figures subject to inflation adjustment):

• Single filer covered by a plan: MAGI $77,000–$87,000 phase-out range. Below $77,000, full deduction. Above $87,000, no deduction.
• Married filing jointly, covered by a plan: MAGI $123,000–$143,000 phase-out range. Below $123,000, full deduction. Above $143,000, no deduction.
• Married filing separately: Much more restrictive; effectively $0–$10,000 phase-out, so nearly complete loss of deduction.

These limits adjust annually for inflation.

How the phase-out works

Within the phase-out range, your deduction reduces proportionally as income rises.

Example: Sarah, single, earned $82,000 (wages) in 2026 and is covered by her employer’s 401(k). The phase-out range for single filers is $77,000–$87,000. Her MAGI is $82,000.

• Width of phase-out: $87,000 − $77,000 = $10,000
• Amount over the threshold: $82,000 − $77,000 = $5,000
• Reduction ratio: $5,000 ÷ $10,000 = 50%
• Full contribution limit: $7,000
• Deductible amount: $7,000 × (1 − 0.50) = $3,500
• Non-deductible amount: $3,500

Sarah can contribute $7,000 to a traditional IRA, but only $3,500 is tax-deductible. The remaining $3,500 goes in as non-deductible basis.

If her income had been $88,000 (above the range), the entire $7,000 would be non-deductible.

Non-covered spouses and separate rules

If you are married and file jointly, your spouse’s income and coverage matter.

Both covered by plans: Both phase-outs apply independently to each person’s own income. Your spouse’s plan coverage doesn’t penalize your deduction; your MAGI does.

You’re covered, spouse is not: You face the single/married phase-out range for your own income. Your spouse has a separate limit based on the couple’s joint MAGI. As of 2026, the spouse without a plan typically has a phase-out range of roughly $206,000–$216,000 (much higher). This higher range assumes the non-covered spouse’s income alone wouldn’t trigger limits, but the household income does.

Neither covered by plans: Both spouses can claim full deductions at any income level.

The non-covered spouse’s threshold is higher because the tax law assumes the non-covered spouse has less “ability to save tax-deferred” via an employer plan.

Why this rule exists

The limits exist to encourage lower- and middle-income workers to use workplace plans when available and to prevent high-income earners from accumulating unlimited tax-deferred savings via IRAs when they already have workplace plan access.

High-income earners usually have employer plans with higher contribution limits ($23,500 as of 2026 for a 401(k)), so the IRA limits for them are less critical. But for someone with an employer plan who earns just above the phase-out threshold, the rule does eliminate the tax deduction.

The workaround: the backdoor Roth

High-income earners who are ineligible to deduct traditional IRA contributions often use a backdoor Roth conversion. The strategy:

1. Contribute non-deductible funds to a traditional IRA (allowed at any income).
2. Immediately convert the balance to a Roth IRA.
3. Because you’re converting non-deductible contributions, you owe no tax on the conversion.
4. The funds grow tax-free in the Roth going forward.

This is legal and permissible, though it requires careful filing on Form 8606 to report the non-deductible basis. The backdoor Roth has no income limit and effectively bypasses the deduction phase-out.

Filing Form 8606 for non-deductible contributions

If you contribute to a traditional IRA and are unable to deduct the full amount (or any amount), you must file Form 8606 with your tax return. This form records your non-deductible contribution basis, which is important for future tax reporting.

Failure to file Form 8606 can result in double taxation: you pay tax on the contribution year (treating it as deductible even though it wasn’t), and then tax again on withdrawal (because the IRS doesn’t know you already paid tax on the basis).

The Roth alternative if income is too high

If your MAGI is above the phase-out range, a Roth IRA contribution may also be unavailable due to separate Roth income limits. For many high earners, the backdoor Roth is the only direct contribution path.

For others, maximizing 401(k) contributions is the primary tax-advantaged strategy, with the IRA being secondary or unavailable.

Calculating your MAGI

To know whether you’re in the phase-out range, calculate your MAGI:

1. Start with adjusted gross income (AGI) from your tax return or tax software.
2. Add back certain deductions the IRS specifies for IRA deductibility purposes (mainly traditional IRA deductions, student loan interest, and a few others; the full list is on Form 590-A).
3. The result is your MAGI for IRA deductibility.

For most workers with W-2 income, AGI and MAGI are the same or very close.

See also