Traditional IRA Contribution and Income Limits
Understand how your income determines the tax benefits of a Traditional IRA and how to properly account for contributions that may not be deductible.
A Traditional Individual Retirement Arrangement, or IRA, is a retirement savings plan that provides tax advantages. Contributions made to a Traditional IRA may be tax-deductible, which can lower your taxable income in the year you contribute. The account’s earnings can grow tax-deferred, meaning you do not pay taxes on them until you take distributions in retirement.
The rules governing these accounts place specific constraints on both how much you can save each year and whether your contributions qualify for a tax deduction. These two factors are distinct and are governed by different sets of regulations issued by the Internal Revenue Service (IRS).
Annual Contribution Limits
The amount you can contribute to a Traditional IRA is subject to an annual dollar limit set by the IRS. For the 2025 tax year, an individual can contribute up to $7,000. This limit applies to the total contributions made across all of your Traditional and Roth IRAs and is a per-person limit for the year, not a per-account limit.
To help individuals closer to retirement age accelerate their savings, the IRS allows for a “catch-up” contribution. If you are age 50 or older at any point during the tax year, you are permitted to contribute an additional $1,000. This raises the total potential contribution to $8,000 for 2025 for those in this age group.
Contributions for a specific tax year can be made up until the federal income tax filing deadline, which is typically April 15 of the following year, and this deadline is not affected by filing for a tax extension. Under the Spousal IRA rules, if you are married and file a joint tax return, you may be able to contribute to an IRA for your non-working or low-earning spouse. The total contributions for both spouses cannot exceed the combined limit for two individuals and must be made into separate IRA accounts.
Income-Based Deduction Rules
The ability to deduct your Traditional IRA contributions from your taxable income depends on your Modified Adjusted Gross Income (MAGI) and whether you are covered by a retirement plan at work. Being “covered” means you or your employer made contributions to a workplace plan, such as a 401(k) or 403(b), for the year. This status is indicated by a “Retirement Plan” checkbox in Box 13 of your Form W-2.
If you are covered by a retirement plan at work, your deduction may be limited. For the 2025 tax year, the deduction is phased out for single or head of household filers with a MAGI between $79,001 and $88,999. For those who are married filing jointly or a qualifying widow(er), the phase-out range is between $126,001 and $145,999. If your MAGI falls within this range, you can only take a partial deduction; if it is above the range, you cannot deduct your contribution.
If you are not covered by a retirement plan at work, your Traditional IRA contribution is fully deductible, regardless of your income level. There is no MAGI limitation on your ability to take the deduction.
A specific rule applies when you are not covered by a workplace plan, but your spouse is. For the 2025 tax year, your ability to deduct your contribution is phased out if your joint MAGI is between $236,001 and $245,999. This rule provides a higher income threshold for the non-covered spouse.
Making Non-Deductible Contributions
Even if your income exceeds the thresholds for taking a tax deduction, you are still permitted to contribute to a Traditional IRA up to the annual maximum. Contributions that you cannot deduct are known as non-deductible contributions and are made with after-tax dollars.
The main benefit is that investment earnings still grow on a tax-deferred basis. You will not pay taxes on any interest, dividends, or capital gains within the account each year, with taxation occurring only when you take distributions.
When you make non-deductible contributions, you create what the IRS calls “basis” in your IRA, which is the total amount of after-tax money you have contributed. It is important to keep records of your basis. This tracking ensures you do not pay taxes again on these contributions when you withdraw them.
Reporting and Tracking Contributions
Properly documenting non-deductible contributions is managed through IRS Form 8606, Nondeductible IRAs. You must file this form with your tax return for any year you make a non-deductible contribution. Its purpose is to report these contributions and track your cumulative IRA basis, which prevents double taxation upon withdrawal.
Part I of the form is where you report your non-deductible contributions for the current year and your total basis from all previous years. The form then guides you through calculations to determine your total basis for the current year.
Filing Form 8606 is required if you have made non-deductible contributions, and failure to file can have financial consequences in retirement. Without a record of your basis, the IRS will assume that all distributions from your Traditional IRA are from pre-tax funds and earnings, making the entire amount subject to income tax. This results in paying tax on the same money twice.