Yes, an individual can contribute to an employer-sponsored retirement plan and to a Traditional IRA. But claiming a federal income tax deduction for a Traditional IRA contribution may be a different matter. Taking a deduction depends on whether the IRA owner (or the IRA owner’s spouse) is an active participant in an employer-sponsored retirement plan—and on their annual income.
Individuals are considered active participants if they participate in one of the following retirement plans for any part of the year.
IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), explains active participation for Traditional IRA contribution deduction purposes. Individuals can also review Form W-2, Wage and Tax Statement, which they receive from employers each year. If “Retirement plan” in Box 13 of Form W-2 is marked, then the individual is considered an active participant in an employer-sponsored retirement plan for that tax year .
Active participants must determine their modified adjusted gross income (MAGI) to see whether they can deduct their IRA contribution; if their income is above a certain threshold, they cannot deduct. For most people, their modified adjusted gross income is the same as their adjusted gross income (AGI). But it may be different, depending on various claimed credits and deductions. So IRA owners should seek competent tax advice or review IRS Publication 590-A, which includes a worksheet to calculate MAGI.
The following chart shows the 2022 and 2023 Traditional IRA deductibility MAGI phase-out ranges for active participants. The phase-out ranges change each year for cost-of-living adjustments.
If an individual’s MAGI is less than the lower threshold of the applicable phase-out range, then the entire Traditional IRA contribution is deductible. For example, if a single, active participant had MAGI in 2023 of $73,000 or less, the whole contribution would be deductible. On the other hand, if an individual’s MAGI is greater than the higher threshold of the applicable phase-out range, then none of the Traditional IRA contribution is deductible. So a single, active participant with MAGI of $83,000 or more could take no deduction. If an individual’s MAGI is within the applicable phase-out range, then only a portion of the contribution is deductible. IRS Publication 590-A also contains a worksheet to determine the deductible amount when MAGI is within the applicable phase-out range.
If an individual is not an active participant but the spouse is, use the threshold on the right-hand side of the chart. In this case, the nonactive participant/spouse would use that higher threshold and the active participant/spouse would use threshold in the middle column (Married, filing jointly). Note that married couples filing separate tax returns are effectively barred from deducting IRA contribution because of the low income threshold.
If neither the IRA owner nor the IRA owner’s spouse is an active participant in an employer-sponsored retirement plan, then the Traditional IRA contribution is fully deductible, regardless of the amount of the MAGI.
The IRA owner may make a nondeductible (after-tax) contribution to a Traditional IRA. Individuals must track nondeductible IRA contributions by filing IRS Form 8606, Nondeductible IRAs, with their tax return. Alternatively, eligible individuals may contribute to a Roth IRA, for which no deductions are permitted, but which provides the benefit of potentially tax-free earnings.
IRA owners with IRA deductibility questions should seek competent tax advice and can be referred to IRS Publication 590-A for additional information.
Ascensus ® and the Ascensus logo are trademarks of Ascensus, LLC.
All Rights Reserved © 2024 Ascensus, LLC.
Follow Us
By using our website, interacting with us on social media, or communicating with us via email or other electronic messages (“Digital Presence”), you consent to the collection, use, and storage of your personal and non personal information as described by our Terms & Conditions of Use, which includes our Privacy & Security Statement. We may amend this policy from time to time; if we do, we will post those changes on this page within a reasonable time after the change so that you are aware of what information we collect and how we intend to use it.
Depending on your interaction with Ascensus, other privacy policies may apply in addition to this Policy.
Before investing in any 529 plan, please consider whether your or the designated beneficiary’s home state offers its taxpayers any benefits that are only available through that state’s 529 plan. Investment objectives, risks, charges, expenses, and other important information are included in each 529 plan’s offering statement; please read and consider it carefully before investing in a 529 plan.
When you invest in a 529 plan, you are purchasing municipal securities whose value may vary based on market conditions. Investment returns are not guaranteed, and you could lose money by investing in a 529 plan. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences.
The availability of tax advantages or other benefits may be contingent on meeting other requirements. Please consult your financial, tax, or other advisors to learn more about how state-based benefits and limitations would apply to your specific circumstance. You may also contact your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations.
Ascensus, LLC provides administrative and recordkeeping services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services. Ascensus® and the Ascensus logo are trademarks of Ascensus, LLC.
The information in this site: (i) is provided “as is”, with no guarantee for completeness or accuracy; (ii) has been prepared for informational purposes only; and (iii) is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consult your legal, tax, or accounting advisor for your particular situation.
