What Are Traditional IRA Contributions?

A traditional Individual Retirement Arrangement (IRA) contribution is a sum of money an individual places into a retirement account for long-term savings. The account allows your investments to grow over time, providing funds for retirement. These contributions can offer immediate tax benefits, making them a popular choice for retirement planning. The specifics of who can contribute, how much, and the tax implications are governed by federal regulations.

Contribution Eligibility and Limits

To contribute to a traditional IRA, an individual must have taxable compensation, which includes wages, salaries, commissions, self-employment income, and other amounts received for providing personal services. Investment income like dividends and interest does not qualify. An individual of any age can contribute as long as they have sufficient earned income.

The Internal Revenue Service (IRS) sets annual limits on the total amount you can contribute to all of your traditional and Roth IRAs. For 2025, the maximum contribution is $7,000. This limit is subject to periodic adjustments for inflation. The total contribution cannot exceed your taxable compensation for the year.

Individuals who are age 50 or over by the end of the tax year are permitted to make an additional “catch-up” contribution. For 2025, this extra amount is $1,000, bringing their total potential contribution to $8,000.

Tax Deductibility Rules

A primary advantage of a traditional IRA is the potential to deduct contributions from your taxable income, which can lower your tax bill for the year. However, the ability to take this deduction depends on two main factors: whether you or your spouse are covered by a retirement plan at work and your Modified Adjusted Gross Income (MAGI).

If you are not covered by a workplace retirement plan, such as a 401(k), you can deduct your full contribution regardless of your income level. The rules become more complex if you do have access to a workplace plan. In this case, your ability to deduct contributions is subject to income limitations.

For the 2025 tax year, a single filer covered by a workplace plan can take a full deduction if their MAGI is $79,000 or less. The deduction is gradually phased out for MAGI between $79,000 and $89,000, and no deduction is allowed if MAGI is $89,000 or more. For those who are married and filing jointly, where the contributing spouse is covered by a workplace plan, the phase-out range is between $126,000 and $146,000.

A different set of rules applies if you are not covered by a workplace plan but your spouse is. In this scenario, for married couples filing jointly in 2025, the deduction is phased out for a MAGI between $236,000 and $246,000. For married individuals filing separately who are covered by a plan, the phase-out range is very low, from $0 to $10,000. If your contribution is not deductible, it is considered a “nondeductible” contribution.

Making and Reporting Contributions

You have until the federal income tax filing deadline to make a contribution for a specific tax year. This means you can make a 2025 contribution up until the tax filing deadline in 2026.

Contributions are made directly to the financial institution, such as a bank or brokerage firm, that acts as the custodian for your IRA. This is usually done through an electronic funds transfer from a checking or savings account, or by mailing a check. You can make contributions as a single lump sum or in smaller increments throughout the year.

If your contributions are deductible, you will report the amount on Schedule 1 of your Form 1040. If you make any nondeductible contributions, you must file Form 8606. This form is used to track your after-tax contributions, which is important for determining the tax-free portion of your withdrawals in retirement.

Handling Excess Contributions

An excess contribution occurs when you contribute more to your IRAs than the annual limit allows or by contributing more than your taxable compensation for the year. These excess amounts are subject to a 6% excise tax for each year they remain in the account.

To avoid the penalty, you must withdraw the excess amount, along with any net income it earned, by the due date of your tax return, including extensions. The original excess contribution is returned tax-free. While the earnings you withdraw are considered taxable income for the year the contribution was made, they are not subject to the 10% early distribution tax.

Another way to handle an excess contribution is to apply it to a subsequent year’s contribution limit. For example, if you over-contributed by $1,000 in one year, you could reduce your contribution by that amount in the following year. While this avoids having to withdraw the funds, the 6% excise tax will still apply for the year the excess was made. You would report this on Form 5329.