Are Your IRA Contributions Tax-Deductible?

Account options for individuals seeking potential tax deductions

Traditional IRA

A Traditional IRA allows for tax-deductible contributions, depending on your income and whether you or your spouse are covered by an employer-sponsored retirement plan. If neither of you is covered, your contributions are fully deductible. However, if you are covered, the IRS applies income thresholds to determine your deduction amount.

The key advantage of a Traditional IRA is tax-deferred growth—your investments grow without being taxed until withdrawal, at which point they are taxed as ordinary income. While you can start taking distributions at age 59½, you must begin Required Minimum Distributions (RMDs) by age 72. Withdrawals before 59½ may incur a 10% penalty, in addition to taxes.

Video: John Bowens explains why tax deductions aren’t the only tax benefits to consider when thinking about retirement accounts.

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Health Savings Account (HSA)

Though primarily a healthcare savings tool, an HSA offers significant tax advantages. Contributions are tax-deductible, and funds grow tax-free. Withdrawals are also tax-free if used for qualified medical expenses. HSAs provide a triple tax benefit – deductible contributions, tax-free growth, and tax-free withdrawals.

To contribute, you must be enrolled in a high-deductible health plan (HDHP). The 2025 contribution limits are $4,300 for individuals and $8,550 for families, with a catch-up contribution of $1,000 for those 55 and older. Unlike other accounts, unused HSA funds roll over year to year, making it a valuable long-term savings option for both medical and non-medical expenses after age 65.

Account options for businesses seeking potential tax deductions

If you own a business, you may be eligible for retirement plans with potentially larger contribution and deduction limits, in addition to an IRA and/or HSA.

Schedule a consultation with an Equity Trust IRA Counselor to discuss account options for your business.

As with all our accounts, our small business plans have the freedom to invest beyond the stock market, including alternative assets such as real estate, notes/private debt, private equity, and more.

Simplified Employee Pension (SEP) IRA

A SEP IRA is a retirement savings option designed for small business owners with up to 25 employees and self-employed individuals. Employers make contributions to SEP IRAs on behalf of their employees, and these contributions are tax-deductible for the business, making it an efficient way to lower taxable income while saving for retirement.

One of the biggest benefits of a SEP IRA is its flexibility—employers can adjust contributions from year to year based on the company’s financial performance. This account type also offers the benefit of tax-deferred growth, meaning the investments grow without being taxed until the employee withdraws the funds during retirement.

According to the IRS, the most you can deduct on your business’s tax return for SEP IRA contributions is the lesser of 25 percent of employee compensation or the annual contribution limit.

Savings Incentive Match Plan for Employees (SIMPLE) IRA

The SIMPLE IRA is designed for small businesses with generally 100 or fewer employees, offering a straightforward retirement plan that benefits both employers and employees. Employers are required to make contributions to employee accounts, which are tax-deductible, making it a valuable way to reduce business tax liabilities while providing a retirement benefit.

Employees can also contribute to their SIMPLE IRAs, and these contributions are made pre-tax, reducing their taxable income for the year. The account grows tax-deferred, meaning the funds can accumulate over time without being taxed until they are withdrawn in retirement.

Employers contribute a percent-based salary match (1-3 percent) and employees may elect to contribute through salary deferral. As the employer, you may deduct contributions made to employees’ SIMPLE IRAs on your business tax return. However, employee participants cannot deduct contributions to their SIMPLE IRA.

Solo 401(k)

A Solo 401(k) is a retirement plan designed for self-employed individuals or small business owners with no full-time employees, offering significant flexibility and tax advantages. With a Solo 401(k), you can contribute as both the employer and the employee, allowing you to maximize your retirement savings while reducing your taxable income.

Contributions to a Solo 401(k) are made pre-tax, which means they lower your taxable income for the year and the investments grow tax-deferred until you withdraw the funds in retirement. This account is ideal for those who want to take advantage of high contribution limits and want control over their investment options. Like other retirement accounts, early withdrawals may result in penalties, and you’ll need to begin taking required distributions once you reach a certain age.

Is a Roth IRA or Roth Solo 401(k) tax-deductible?

Contributions to a Roth IRA or Roth Solo 401(k) are not tax-deductible because they are made with after-tax dollars. However, the key benefit of Roth accounts is that the earnings grow tax-free, and withdrawals in retirement are also tax-free, provided certain conditions are met. Although you won’t receive a tax deduction upfront, Roth accounts can provide substantial tax savings in the long term, especially if you expect to be in a higher tax bracket during retirement.

Self-Directing Your Tax-Deductible Accounts

With a self-directed IRA custodian such as Equity Trust, individuals and business owners have the opportunity to invest in alternatives outside of traditional assets like stocks, bonds, and mutual funds.

Whether you have experience in real estate, private equity, precious metals, or cryptocurrency, it’s possible to build wealth for retirement by investing in what you know best with your tax-advantaged account(s).

What are your plans for reducing your tax burden now and in the future?

Schedule a consultation with an Equity Trust IRA Counselor to discuss your tax-advantaged account options for you or your business.

[1] https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps#contributions
[2] https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans#contributions
[3] https://www.irs.gov/retirement-plans/one-participant-401k-plans