What is the Maximum Deductible IRA Contribution?
The amount you can contribute to an IRA is different from the amount you can deduct. Learn how income and workplace retirement plans impact your deduction.
An Individual Retirement Arrangement, or IRA, is a personal savings plan that offers tax advantages for retirement. While making a contribution is the first step, the separate question is whether you can deduct that contribution from your current year’s taxable income. The ability to take this deduction provides an immediate tax benefit by lowering your adjusted gross income, which can reduce the amount of tax you owe. This distinction between contributing and deducting is important for understanding how a Traditional IRA works.
Annual IRA Contribution Limits
The Internal Revenue Service (IRS) sets annual limits on the total amount you can contribute across all of your IRAs, including both Traditional and Roth IRAs. For 2024 and 2025, the maximum contribution you can make is $7,000, which applies to your combined contributions if you have more than one IRA. The tax code also allows for a “catch-up” contribution to help older individuals accelerate their savings. If you are age 50 or over during the tax year, you can contribute an additional $1,000, bringing the total potential contribution for this age group to $8,000 for 2024 and 2025.
Determining Your Traditional IRA Deduction
The ability to deduct your Traditional IRA contributions depends on two factors: whether you are covered by a workplace retirement plan, like a 401(k), and your Modified Adjusted Gross Income (MAGI). If you are not covered by a workplace plan, you can deduct your full contribution up to the annual limit, regardless of your income.
If you are covered by a retirement plan at work, your deduction may be limited based on your MAGI and filing status. The IRS sets income phase-out ranges where the deduction is gradually reduced before being eliminated. For 2025, a single filer’s deduction is phased out with a MAGI between $79,000 and $89,000.
For those married and filing jointly where the contributing spouse is in a workplace plan, the 2025 phase-out range is between $126,000 and $146,000. If your MAGI falls within the applicable range, your deduction is reduced proportionally. If your MAGI is above the range, you cannot deduct your contribution.
Spousal IRA Deduction Rules
A spousal IRA allows a contribution for a spouse with little or no compensation. To be eligible, the couple must file a joint tax return, and the working spouse must have enough earned income to cover contributions for both people.
The deduction rules for a spousal IRA also depend on income and workplace plan coverage. A different phase-out range applies if the spouse receiving the contribution is not covered by a workplace plan, but their partner is. For 2025, the deduction for the spousal IRA is phased out if the couple’s combined MAGI is between $236,000 and $246,000.
If the couple’s MAGI is within this range, the deduction is partially available. Should their combined MAGI exceed $246,000 for 2025, no deduction can be taken for the spousal IRA contribution.
Reporting Nondeductible Contributions
If you make a contribution to a Traditional IRA that you cannot deduct, it is a nondeductible contribution. You must report these contributions to the IRS to avoid double taxation when you withdraw the funds in retirement.
This is done using IRS Form 8606, Nondeductible IRAs, which you must file with your federal tax return for any year you make such a contribution. The form’s purpose is to track your total basis, which is the sum of your nondeductible contributions.
This record ensures that when you take distributions, the portion representing your basis is returned tax-free. You should keep copies of all filed Form 8606s with your permanent tax records until all funds have been withdrawn from your IRAs.