Both employer-sponsored retirement plans and Individual Retirement Accounts (IRAs) are valuable tools to help you save for retirement. While it is permitted to contribute to both types of retirement accounts, the ability to claim a tax deduction for a traditional IRA contribution may be limited when you or your spouse are also eligible to participate in an employer-sponsored retirement plan, like a 401(k). This limitation is based on your modified adjusted gross income (MAGI).
If neither you nor your spouse are not covered by a retirement plan at work, these income limits do not apply, and you can generally take a full deduction.
Here’s what you should know if you or your spouse are covered by an employer retirement plan and contributing to a traditional IRA.
401(k) and IRA basics
Traditional IRAs offer the potential for tax-deductible contributions. This means you may be able to subtract the amount you contribute to a traditional IRA for a particular tax year from your taxable income received in the same tax year, potentially lowering your current tax bill.
Employer-sponsored retirement plans, such as a 401(k), can also offer tax-deductible participant contributions. So, when you have both, specific rules apply.
Income and deduction limits
The IRS sets income thresholds each year (subject to cost of living adjustments) that are used to determine whether you can take a full, partial, or no deduction for traditional IRA contributions if you or your spouse are covered by a 401(k) or other employer-sponsored plan.
Full deduction: If your MAGI is below a certain level, you can take the full deduction for your traditional IRA contributions.
Partial deduction: If your MAGI falls within a specified range, you might be eligible for a partial deduction.
No deduction: If your MAGI exceeds a certain limit, you likely won't be able to deduct your traditional IRA contributions at all.
The chart below provides details on the MAGI limits for tax-deductible traditional IRA contributions in 2025 if you are covered by a retirement plan at work:
Filing status | Modified adjusted gross income (MAGI) | Deduction limit |
Single individuals | ≤ $79,000 | Full deduction |
Single individuals | > $79,000 but < $89,000 | Partial deduction |
Single individuals | ≥ $89,000 | No deduction |
Married (filing jointly) | ≤ $126,000 | Full deduction |
Married (filing jointly) | > $126,000 but < $146,000 | Partial deduction |
Married (filing jointly) | ≥ $146,000 | No deduction |
Married (filing separately) | < $10,000 | Partial deduction |
Married (filing separately) | ≥ $10,000 | No deduction |
Income limits and tax rules can change annually.
There are also income limits that will determine if you’re eligible to make Roth IRA contributions. You’ll want to understand these rules, so you can make informed decisions for your retirement savings.
Why these rules exist
The rules that govern deductibility of retirement account contributions are designed to ensure that tax benefits for retirement savings are distributed equitably. By limiting deductions for higher-income earners who already have access to an employer-sponsored retirement plan, the IRS aims to encourage retirement savings among a broader range of individuals.
What to consider if you're contributing to both an employer sponsored plan and a traditional IRA
If you are a participant in a retirement plan through your employer and are considering contributing to a traditional IRA, it's crucial to determine your MAGI for the applicable tax year and compare it to the IRS income limits for that same tax year. This will help you determine whether your IRA contribution will be tax-deductible.
If your income exceeds the limit for the applicable tax year, you may still contribute to a traditional IRA, but those contributions won't be tax-deductible. Alternatively, you might consider a Roth IRA, which has its own income limitations but offers tax-free¹ withdrawals if certain conditions are met.
It's important to consult the latest IRS guidelines or a qualified financial advisor to ensure you're making the most informed decisions about your retirement savings strategy.
By understanding how being covered by an employer-sponsored retirement plan can impact your ability to deduct traditional IRA contributions, you can better plan your retirement savings and optimize your tax benefits.
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For informational purposes only. This should not be considered financial, tax, or legal advice. Contact a financial professional to evaluate what retirement plan is best suited for your situation.
¹ Roth distributions will be tax-free if the following conditions are met: (a) you're age 59½ or older, or disabled or a first time homebuyer (lifetime $10,000 limit) AND (b) the distribution is made after the 5-year period has been met, beginning with the first tax year you made a contribution to a Roth IRA. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.