What the deduction is worth
A traditional IRA contribution is an above-the-line deduction: it lowers your adjusted gross income whether or not you itemize. The saving equals your marginal rate: a $7,500 contribution in the 22% bracket cuts your tax by $1,650, so the real cost of saving $7,500 is $5,850. Lowering AGI has a second benefit too, because so many credits and phase-outs are tested against it.
2026 limits
You can contribute up to $7,500 for 2026, or $8,600 if you're 50 or older (a $1,100 catch-up). The limit applies across all your IRAs combined: traditional and Roth together, not each. You also can't contribute more than your earned income for the year, though a working spouse can fund a spousal IRA for a non-working partner. Contributions for a tax year can be made right up to the April filing deadline, which makes an IRA one of the few tax moves still available after the year has ended.
The workplace-plan phase-out
Here's the rule that surprises people. Anyone with earned income can contribute to a traditional IRA, but whether it's deductible depends on income if you (or your spouse) are covered by a 401(k) or similar plan at work. Above the phase-out range the deduction shrinks to nothing, leaving a non-deductible contribution. If neither spouse is covered by a workplace plan, the contribution is fully deductible at any income level.
| Who is covered by a workplace plan | 2026 phase-out range |
|---|---|
| You: single or head of household | $81,000 – $91,000 |
| You: married filing jointly | $129,000 – $149,000 |
| Only your spouse: married filing jointly | $242,000 – $252,000 |
| You: married filing separately | $0 – $10,000 |
Inside the range the deduction shrinks proportionally rather than disappearing at once, and it never drops below $200 until it reaches zero at the top. The calculator above applies whichever range fits your situation.
Traditional or Roth?
The question is simply whether your tax rate is higher now or in retirement. A traditional IRA deducts today and taxes withdrawals later: better if you're in a high bracket now and expect a lower one later. A Roth gives no deduction but grows and withdraws entirely tax-free, and has no required minimum distributions: better if you're early-career, in a low bracket, or expect higher rates ahead. Roth IRAs have their own income limits for direct contributions. Our 401(k) vs IRA comparison walks through the decision.
Order of operations
For most people the sequence is: capture the full employer 401(k) match first (it's an instant 100% return), then fund an HSA if you're eligible, then an IRA, then more 401(k). If your IRA deduction is phased out, a Roth IRA is usually the better home for the money, or, if you're self-employed, a SEP-IRA or solo 401(k) with far higher limits. Withdrawals before 59½ generally face a 10% penalty plus income tax, with exceptions for first-home purchase, higher education and certain medical costs.