IRA deduction phase-outs: a club with a bouncer named MAGI

By Tom, CPA · Updated October 25, 2026

TL;DR: For 2026, you can deduct a traditional IRA contribution in full if neither you nor your spouse is covered by a workplace plan. If you're covered, the deduction phases out between $81,000 and $91,000 of MAGI (single) or $129,000 and $149,000 (married filing jointly). If only your spouse is covered, the range is $242,000 to $252,000.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The traditional IRA deduction is the tax code's velvet-rope nightclub. Everybody can stand in line (anyone with compensation can contribute), but the bouncer, MAGI, decides who gets the deduction inside. And the bouncer has a second question: "Are you covered by a workplace plan?" Answer yes and the rope gets a lot tighter.

Understanding these phase-outs matters for early retirees because the IRA deduction is one of the few levers that lowers MAGI, which controls ACA subsidies and bracket space. It also determines whether you're building pre-tax money or after-tax basis, which matters for pro-rata math later.

CPA Warning Label: Being 'covered' by a workplace plan is a technical test, not a feeling. A single employer contribution, or merely being eligible for a pension, can make you covered for the year.

Covered vs not covered

The Form W-2 "Retirement plan" box (box 13) is usually the signal, but the IRS test in Publication 590-A is what counts:

• Defined contribution plans (401(k), 403(b), profit-sharing): you're covered if amounts were contributed or allocated to your account for the plan year that ends within your tax year. Even an employer contribution or forfeiture allocation counts.
• Defined benefit (pension) plans: you're covered if you're eligible to participate for the plan year, even if you declined to participate, didn't make a required contribution, or didn't meet the minimum service.
• Not covered: Social Security or railroad retirement alone don't count. A governmental 457(b) alone doesn't count as coverage either.

Coverage for even part of the year counts for the whole year. Someone who retires in March after receiving a 401(k) match that year is typically "covered" for that tax year.

2026 phase-out ranges

Source: IRS IR-2025-111 and Notice 2025-67 (2026 limits). If you lived apart from your spouse all year and file separately, you're treated as single for this purpose.

Spouse-covered rules

The middle row is the one people miss. If you aren't covered but your spouse is, your deduction phases out only at $242,000 to $252,000 of joint MAGI. That's why a stay-at-home spouse or a self-employed spouse without a plan often gets a full deduction while the covered spouse doesn't. Each spouse's deduction is tested separately based on that spouse's own coverage. See the spousal IRA guide.

How the partial deduction works

Inside the range, the deduction shrinks proportionally. Publication 590-A's worksheet:

1. Subtract your MAGI from the top of the range.
2. Divide by the width of the range ($10,000 for single; $20,000 for MFJ with the contributing spouse covered; $10,000 for the spouse-covered row).
3. Multiply by your contribution limit ($7,500, or $8,600 at 50+).
4. Round up to the next $10; if the result is more than $0 but less than $200, you can deduct $200.

MAGI for this purpose is AGI with the IRA deduction itself added back, plus some exclusions (like foreign earned income and student loan interest deduction).

Illustration: partial deduction

Illustration (assumptions): Fran is single, 45, covered by her employer's 401(k), with MAGI of $85,000.

• Top of range minus MAGI: $91,000 − $85,000 = $6,000.
• $6,000 ÷ $10,000 = 0.60.
• 0.60 × $7,500 = $4,500 deductible.

She can still contribute the full $7,500; the remaining $3,000 is nondeductible and becomes basis, reported on Form 8606. Alternatively, she could put $4,500 in a traditional IRA (deductible) and $3,000 in a Roth IRA, since her MAGI is well under the single Roth phase-out ($153,000 to $168,000). She could also lower MAGI by raising her 401(k) deferral, which might bring the deduction back to full.

The nondeductible fallback

When the bouncer says no, you still have options:

• Roth IRA directly if under the Roth phase-out.
• Nondeductible traditional IRA and then a backdoor Roth conversion. Watch the pro-rata rule if you have other pre-tax IRA money.
• Nondeductible IRA left alone: usually a poor choice. Growth is taxed as ordinary income at withdrawal, you have to track basis forever, and a taxable brokerage account may do better.
• More workplace deferrals: pre-tax 401(k) deferrals up to $24,500 in 2026 reduce MAGI directly.

A second illustration: married, one covered

Illustration (assumptions): Larry and Fran file jointly with MAGI of $140,000. Larry is covered by a 401(k); Fran is self-employed with no retirement plan and $30,000 of net earnings. Both are under 50.

• Larry's deduction: his range is $129,000 to $149,000 (width $20,000). ($149,000 − $140,000) ÷ $20,000 = 0.45. 0.45 × $7,500 = $3,375, rounded up to $3,380 deductible.
• Fran's deduction: she isn't covered. Her range is the spouse-covered range of $242,000 to $252,000, and $140,000 is below it, so her full $7,500 is deductible.
• Combined: $10,880 deductible out of $15,000 contributed. At a 22% marginal rate, that's roughly $2,390 of federal tax saved.

The deductions reduce their MAGI further, but MAGI for the phase-out is calculated before the IRA deduction, so there's no circular loop. If Fran set up her own SEP IRA or solo 401(k), she'd become covered herself and her range would drop to $129,000 to $149,000. That might still be worth it for the larger contribution room, but it's a trade-off to model rather than an automatic win.

Common mistakes

• Assuming you're not covered because you didn't defer. An employer nonelective or match allocation is enough for a defined contribution plan, and pension eligibility alone counts.
• Forgetting partial-year coverage in the year you retire or change jobs.
• Using AGI instead of MAGI. Add back the items on the worksheet.
• Skipping Form 8606 for the nondeductible part. Without it, you could pay tax again on that basis later. The penalty for not filing is $50, but the bigger cost is losing track of basis.
• Deducting and also converting the same dollars as if they were basis. A deductible contribution converted to Roth is taxable on conversion.
• Treating married filing separately as a workaround. The $0–$10,000 range makes it the worst option when either spouse is covered, unless you lived apart all year.

Most of these are fixable. You have until the filing deadline to recharacterize a contribution from traditional to Roth or vice versa, or to withdraw an excess contribution with its earnings and avoid the 6% excise tax.

Deduct now or keep basis? A quick framework

When you do qualify for the deduction, it isn't automatically the best move. A deductible contribution saves tax at today's marginal rate and is taxed at your withdrawal rate later; a Roth contribution is the reverse. For many early retirees, the answer depends on whether today's rate is higher than the rate expected during low-income conversion years. If you're at 22% or 24% now and expect to convert in the 10% or 12% bracket after retiring, the deduction usually wins. If you're at 12% now, Roth often wins.

Early-retirement angle

Once you retire, you usually stop being covered by a workplace plan, so the deduction limits disappear. But you also need compensation to contribute. That combination makes the year after a part-time gig or consulting work interesting: a small amount of self-employment income can support a fully deductible IRA contribution that lowers MAGI for ACA purposes, while your coverage status no longer limits you. In the final working year, remember that coverage for part of the year counts for all of it.