Contributing to an individual retirement account (IRA) offers not only a valuable way to save for retirement, but also potential tax benefits. One of the key advantages of contributing to a Traditional IRA is the ability to deduct contributions from your taxable income — effectively lowering your tax bill.
This guide breaks down how the IRA tax deduction works in 2025, who qualifies, and how you can maximize your tax savings. Plus, we’ll cover a few additional tax time reminders to help you stay on top of your planning this year.
What is an IRA tax deduction?
An IRA tax deduction allows you to reduce your taxable income by contributing to a Traditional IRA. This deduction can lower your overall tax bill, making it an attractive benefit for those saving for retirement.
The deduction is only available for contributions to a Traditional IRA – Roth IRA contributions are not deductible, though they do offer tax-free withdrawals in retirement.
Who qualifies for an IRA tax deduction?
Not everyone qualifies for the IRA tax deduction. Eligibility depends on your income, your tax filing status, and whether you (or your spouse) are covered by a retirement plan at work.
Key factors that impact eligibility
- Income: The IRS sets income limits that gradually phase out your deduction as your income increases.
- Workplace plans: If you (or your spouse, if married) are covered by a retirement plan at work (like a 401(k)), the deduction may be reduced or eliminated at higher income levels.
- Filing status: Married couples, single filers, and those filing separately all have different income phase-out ranges.
IRA deduction income limits for 2025
Your eligibility for a full or partial IRA deduction in 2025 depends on your income level, tax filing status, and whether you or your spouse are covered by a retirement plan at work. The IRS updates these income limits each year.
To see the most current income thresholds and phase-out ranges, visit our IRA contribution limits page.
How much can you contribute to an IRA in 2025?
For 2025, the maximum contribution limit for Traditional and Roth IRAs is:
- $7,000 if you’re under age 50
- $8,000 if you’re age 50 or older (including a $1,000 catch-up contribution)
This limit applies to all IRAs combined, not per account.
How to claim the IRA tax deduction
To claim the IRA tax deduction, you’ll need to report your contributions when filing your federal income tax return.
- Contribute to a Traditional IRA by the tax filing deadline (typically April 15, 2026, for the 2025 tax year). Yes, you can contribute for 2025 up until Tax Day 2026!
- Report the contribution on IRS Form 1040, Schedule 1.
- Your tax software or tax professional will determine your eligible deduction amount based on your income, filing status, and workplace retirement coverage.
Full vs. partial deduction: how phase-outs work
If your income falls within the phase-out range based on your filing status, you may only qualify for a partial deduction. Above the phase-out range, you can still contribute to a Traditional IRA, but the contribution will be non-deductible.
Potential benefits of the IRA tax deduction
The IRA tax deduction offers several potential benefits:
- Reduces your taxable income for the year you contribute
- Contributions grow tax-deferred until withdrawn in retirement
- Available even if you contribute to other retirement accounts, though income limits apply
- Some states offer state-level tax deductions for IRA contributions.
- Contributions can be invested in a wide range of assets, including stocks, bonds, mutual funds, and more.
What if you earn too much for a deduction
Even if your income is too high to qualify for a deductible Traditional IRA contribution, you have other options:
- You can still contribute to a Traditional IRA, but your contributions will be non-deductible. Your contributions will still grow tax-deferred.
- If you qualify, you can contribute to a Roth IRA instead (income limits apply).
- High earners who exceed the Roth IRA income limits may also consider a Backdoor Roth IRA, which involves making a non-deductible Traditional IRA contribution and converting it to a Roth IRA.
Additional tax time reminders
Review contributions to other retirement accounts
Make sure you’ve maximized contributions to other retirement accounts like your 401(k) or 403(b). Higher contribution limits apply to these workplace plans, offering even more tax-deferred savings.
Double check health savings account (HSA) contributions
If you have a Health Savings Account (HSA), remember that contributions may also be tax-deductible and grow tax-free if used for qualified medical expenses.
Track charitable donations
Donations to qualified charities can also provide valuable deductions if you itemize your return.
Consider estimated tax payments
If you’re self-employed or have income not subject to withholding, make sure you’ve paid your quarterly estimated taxes to avoid penalties.
Common questions about IRA tax deductions
Can I contribute to an IRA if I have a 401(k)?
Yes, but whether you can deduct your Traditional IRA contribution depends on your income and filing status.
Is there an age limit for contributing to an IRA?
No, as long as you have earned income, you can contribute to an IRA regardless of age.
What counts as earned income for IRA contributions?
Earned income includes:
- Wages
- Salary
- Self-employment income Investment income, Social Security, and pension payments do not count.
Can my spouse contribute if they don’t work?
Yes — if you file a joint tax return, your spouse can contribute to a spousal IRA based on your earned income.
Final thoughts
Whether or not your IRA contributions are tax deductible depends on a few variables, but understanding the rules can help you make smarter choices for both your retirement and your taxes.
Even if you don’t qualify for a deduction, it’s worth reviewing your eligibility each year and considering how retirement contributions fit into your overall financial picture.
Real estate investors looking to generate more capital for real estate deals in a self-directed IRA can potentially build their balances quickly in a short period of time.
Can you contribute to a 401(k) with an employer and contribute to an IRA?
Yes, you may make contributions to a 401(k) and an IRA. You do have to be mindful of the income limits with regards to taking a deduction to your Traditional IRA.
For instance, a full deduction is available if your modified adjusted gross income (AGI) is $123,000 or less for 2024 (if married, filing jointly). A partial deduction is available for incomes between $123,000 and $143,000 for 2024.
A deduction is not available for incomes greater than $143,000 for 2024. “Earned income” refers to income that you are paying payroll taxes on (Medicare and social security) along with ordinary income taxes.
Should you consider a Roth IRA?
The Roth IRA is funded with after-tax dollars and grows tax-free, with tax-free distributions providing the taxpayer is over 59½ and the account has seasoned for five years.
Imagine applying the laws of compounding interest: no taxes on growth and no taxes coming out!?
For example, an investor put a storage facility (real estate) under contract with an option, using his Roth IRA, with only a $5,000 deposit. He then assigned the option contract to another investor and received $20,000 in tax-free profit back into his Roth IRA.
A question we commonly receive about the Roth IRA: If I make too much money, may I contribute to a Roth IRA? This is in reference to Adjusted Gross Income Limits (MAGI).
If you’re single and make over $161,000 MAGI, you are not permitted to contribute at all, while those with slightly lower MAGI can contribute a percentage of the contribution limit. When married filing jointly, the MAGI limit for making a contribution is $240,000.
These limits apply to 2024, so check the updated MAGI limits via IRS.gov for the year in which you intend to make a contribution.
If you earn too much to make a Roth contribution, you can potentially deploy what is known as the backdoor Roth IRA contribution approach. This is when investors make a contribution to a Traditional IRA and then immediately convert to a Roth IRA. Speak with your CPA or accountant regarding this movement of funds.
What do investors need to know about changes to the tax code?
Contribution limits and income limits for Roth IRAs often change, so it is important to keep up on this.
You also need to be aware of the SECURE Act, which went into effect January 1, 2020. The most notable changes to retirement accounts, among others, are:
- Required Minimum Distribution (RMD): RMD age for IRA holders was increased from 70½ to 72. Once you turn 72, you are required to distribute a percentage of your IRA. This is based on the life expectancy rate published by the IRS. You can visit IRS.gov to find this table and perform the calculations accordingly. For self-directed investors with alternative investments such as real estate, notes, trust deeds, private placements, or gold and silver in their portfolios, you may want to examine the cash flow of these investments to ensure you can satisfy the RMDs. It may be possible to distribute a portion or an entire alternative asset if needed.
- Traditional IRA contributions: Prior to the SECURE ACT, if you were over 70 ½ years of age, you were not permitted to make a contribution to a Traditional IRA. This was lifted under the legislation.
- Inherited IRAs: The SECURE ACT forces inherited IRAs that are inherited January 1, 2020 and beyond, to be distributed within 10 years of inheriting the account. The only exception to the 10-year rule is for minors inheriting an account.
Note: There are more changes on the way as a result of the legislation known as SECURE Act 2.0.
1Am I eligible to make a contribution? How much can I contribute?
The IRS publishes maximum IRA contribution limits and catch up provisions each year. Summaries for each type of contribution can be found on Contribution Limits.
2Is the 990-T separate from the individual tax return?
Yes. The IRA will need to establish its own EIN to file 990-T. This number separates the IRA from the owner’s Social Security Number, which is used in the individual tax return.
The IRS will more easily be able to separate your individual tax filings from the IRA’s tax filings.
The 990-T is a separately filed return, though due at the same time, and should not be combined with that of the IRA owner’s individual return.
