IRA Deduction Phase-Out: Income Limits, MAGI, and Calculation

The traditional IRA deduction phase-out is the income band across which your ability to deduct a traditional IRA contribution shrinks and then disappears. It only applies if you or your spouse is covered by a workplace retirement plan. For 2026, a single filer covered at work keeps the full deduction up to $81,000 of modified adjusted gross income, gets a partial deduction between $81,000 and $91,000, and loses it entirely above $91,000. Married couples filing jointly have their own thresholds, and those thresholds change depending on which spouse is the one covered at work.1Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs

Does the Phase-Out Apply to You

The rule targets “active participants” in a workplace retirement plan. That covers 401(k) plans, 403(b) accounts, traditional pensions, SEP IRAs, and SIMPLE IRAs.2Office of the Law Revision Counsel. 26 USC 219 – Retirement Savings If neither you nor your spouse is in one of these plans, the phase-out doesn’t apply and you can deduct the full contribution at any income.

You count as an active participant even if you personally put nothing in that year. An employer contribution to a profit-sharing plan on your behalf is enough. The fastest check is Box 13 on your W-2: if the “Retirement plan” box is marked, you’re covered for these purposes.3Internal Revenue Service. Common Errors on Form W-2 Codes for Retirement Plans

One exception catches many state and local government workers by surprise. A governmental 457(b) deferred compensation plan is not a qualifying plan for this test.2Office of the Law Revision Counsel. 26 USC 219 – Retirement Savings If a 457(b) is your only workplace plan, you are not an active participant and the phase-out is off the table.

2026 Income Ranges by Filing Status

The applicable range depends on how you file and which spouse is covered.1Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs

  • Single or head of household, covered by a workplace plan: full deduction up to $81,000 MAGI, partial from $81,000 to $91,000, none at $91,000 or above.
  • Married filing jointly, the contributing spouse is covered: full deduction up to $129,000, partial from $129,000 to $149,000, none at $149,000 or above.
  • Married filing jointly, the contributing spouse is not covered but the other spouse is: full deduction up to $242,000, partial from $242,000 to $252,000, none at $252,000 or above.
  • Married filing separately, covered, and lived with your spouse at any point in the year: partial deduction only below $10,000 MAGI, none at $10,000 or above. This range does not adjust for inflation.

Married filing separately is deliberately punitive when spouses live together. If you lived apart from your spouse for the entire year, the IRS lets you use the single-filer thresholds instead. And if neither spouse is an active participant anywhere, the phase-out does not apply at any income level.

Figuring Your Modified Adjusted Gross Income

The income figure that runs through the phase-out is modified adjusted gross income. Start with the AGI on line 11 of Form 1040 and add back the IRA deduction itself, plus the student loan interest deduction, the foreign earned income and housing exclusions, the savings bond interest exclusion, and any employer-provided adoption benefits excluded from income.4Internal Revenue Service. Modified Adjusted Gross Income

Adding back the IRA deduction prevents a circular calculation where the deduction lowers income enough to increase the deduction. For most wage earners without foreign income or adoption benefits, MAGI is close to AGI. The worksheets in IRS Publication 590-A walk through the mechanics, and Appendix B has a separate worksheet for taxpayers receiving Social Security benefits.4Internal Revenue Service. Modified Adjusted Gross Income

How to Calculate the Reduced Deduction

The 2026 contribution limit is $7,500, or $8,600 if you’re 50 or older, reflecting a $1,100 catch-up.5Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Once you’re inside a phase-out range, four steps get you the deductible amount.

  1. Subtract the bottom of your range from your MAGI.
  2. Divide by the width of the range. Single and head of household filers, the non-covered spouse scenario, and married filing separately all use a $10,000 window. Married filing jointly where the contributing spouse is the covered participant uses a $20,000 window. That fraction is the share of the deduction you lose.1Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
  3. Multiply the contribution limit by the share you keep (1 minus the fraction from step 2).
  4. Round up to the next multiple of $10.

Worked example: a single filer under 50 with $86,000 of MAGI. The excess over $81,000 is $5,000, divided by the $10,000 window gives 0.50, so half the deduction is lost. Half of $7,500 is $3,750, already a clean multiple of $10, so $3,750 is deductible.

Two rounding rules matter. Any result that isn’t a multiple of $10 rounds up, not to the nearest. And if the formula produces any positive amount below $200, you can still claim $200.6Internal Revenue Service. Publication 590-A – Contributions to Individual Retirement Arrangements That floor keeps taxpayers near the top of the range from losing the deduction over a few dollars.

If You’re Fully Phased Out

Losing the deduction doesn’t stop you from contributing. You can put up to the annual limit into a traditional IRA as a non-deductible contribution. Doing so creates “basis” in the account, meaning after-tax dollars that won’t be taxed again when you withdraw them.7Internal Revenue Service. Instructions for Form 8606

Track that basis. Every year you make a non-deductible contribution you have to file Form 8606 with your return so the IRS can separate the taxable and non-taxable portions of your later withdrawals. Skipping the form triggers a $50 penalty and risks being taxed twice on money you already paid tax on.7Internal Revenue Service. Instructions for Form 8606

Some fully phased-out taxpayers use a “backdoor Roth”: make a non-deductible traditional IRA contribution, then convert it to a Roth. Because the contribution was already taxed, the conversion generates little or no additional tax, and the money then grows tax-free. The complication is the pro-rata rule. If you hold other traditional IRA balances containing pre-tax money, the IRS treats all your traditional IRAs as one pool and taxes the conversion proportionally across pre-tax and after-tax dollars. Large existing balances can turn a “backdoor Roth” into a taxable event, so run the numbers first.

Contribution Deadline and the Excess Contribution Penalty

You have until the tax return filing deadline to make an IRA contribution for the prior year. Contributions for 2026 can be made through April 15, 2027, and filing an extension for your return does not extend the IRA deadline.8Internal Revenue Service. Traditional and Roth IRAs

Contributing more than the annual limit, or deducting more than the phase-out allows, creates an excess contribution. The IRS charges a 6% excise tax on the excess for every year it stays in the account.9Internal Revenue Service. Retirement Topics – IRA Contribution Limits Withdraw the excess and its earnings before your filing deadline, including extensions, to stop that clock.