How a traditional IRA works
A traditional IRA postpones income tax rather than avoiding it. A deductible contribution lowers this year’s taxable income, so at a 22% marginal rate a $7,500 deduction saves $1,650 of federal tax. The money then compounds with no yearly tax on interest, dividends or gains. Every taxable dollar that comes out later, meaning the deducted contributions and all of the growth, is ordinary income in the year you withdraw it, taxed at the rates you face then.
That makes the account most valuable when your tax rate in retirement is lower than your rate while working, which is common once a paycheck stops. As one of the two personal kinds of IRA, it also lets you decide each year whether and how much to contribute. Until the April deadline you can wait to see your income before choosing between a traditional and a Roth IRA contribution, and a contribution made to the wrong type can be recharacterized, moved with its earnings into the other type, by the return due date including extensions.
Who can deduct a traditional IRA contribution in 2026
Anyone with taxable compensation can contribute, whatever their income. Deducting is a separate test. If neither you nor your spouse was covered by a retirement plan at work for any part of the year, the whole contribution is deductible at any income. If either of you was covered, the deduction phases out over the 2026 ranges in the table below, measured by modified AGI.
Coverage is usually marked in the Retirement plan box of your Form W-2. It means money was contributed or allocated to your account in a 401(k)-style plan for the plan year, or you were eligible for a pension, even if you declined to join. Social Security isn’t a workplace plan for this purpose.
Coverage is judged spouse by spouse. A covered spouse on a joint return loses the deduction at $149,000, but a spouse who isn’t covered keeps a full deduction until $242,000, even when the other spouse has a 401(k). That gap often lets a spousal IRA contribution for a nonworking partner be deducted in full when the earner’s own contribution can’t be. Married people filing separately who lived together at any point in the year face a range of only $0 to $10,000. Inside a range, the deductible amount shrinks in proportion, rounded up to the next $10, and it never drops below $200 until it reaches zero.
Nondeductible contributions and basis
Earning too much for a deduction doesn’t stop you from contributing. The part you can’t deduct becomes a nondeductible contribution, also called basis, and you must report it on Form 8606, even in a year when you don’t otherwise have to file a return. Skipping the form carries a $50 penalty, and the bigger cost is losing track of money you already paid tax on.
Basis comes back tax-free, but not first. Under the pro-rata rule, every withdrawal or conversion is part basis and part taxable, in proportion to your basis and the year-end value of all your traditional IRAs combined. The earnings on nondeductible money are taxed as ordinary income when withdrawn, so a nondeductible traditional IRA mostly buys tax deferral, not a tax saving.
That is why many high earners use a nondeductible contribution only as a stepping stone: they convert it to a Roth IRA soon after, a two-step move known as the backdoor Roth IRA. The pro-rata rule decides how much of that conversion is taxed when other pre-tax IRA money is already in the account.
Withdrawals, early access and RMDs
Before 59½, the taxable part of a withdrawal usually carries a 10% additional tax on top of income tax, the early withdrawal penalty. IRAs have some exceptions workplace plans lack: up to $10,000 over your lifetime for a first home, qualified higher education costs, and health insurance premiums while unemployed. A series of 72(t) payments avoids the tax at any age. The rule of 55, by contrast, covers workplace plans but not IRAs.
Required minimum distributions begin at 73 for most people born from 1951 through 1959 and at 75 for those born in 1960 or later. The first is due by April 1 of the year after you reach that age, every later one by December 31. Each is the prior year-end balance divided by an IRS life-expectancy divisor, 26.5 at age 73. A missed RMD costs a 25% excise tax on the shortfall, cut to 10% if you correct it within two years.
From age 70½ you can send up to $111,000 in 2026 straight to charity as a qualified charitable distribution, which counts toward your RMD but stays out of taxable income. Traditional IRA money left to heirs is taxed as their income, with no step-up in basis, and most non-spouse beneficiaries must empty an inherited IRA within 10 years.
When a traditional IRA tends to work well
The traditional IRA wins or loses on the gap between the rate you save at today and the rate you pay when the money comes out. The deduction also lowers adjusted gross income, which feeds other tests: a smaller AGI can bring you under the Saver’s Credit ceiling, which is $80,500 for a joint return in 2026, or reduce income-tested costs. The situations below tend to favor it, while the opposite cases favor a Roth IRA:
- Peak earning years in a high bracket, when you expect to live on noticeably less income in retirement.
- A gap after retirement and before Social Security or RMDs, when the balance can be drawn or converted at low rates.
- No workplace plan for either spouse and income too high for a direct Roth contribution, since the deduction then has no income limit.
- Plans to move to a state with lower or no income tax on retirement withdrawals.
- An intention to convert part of the balance later, in years when your bracket is lower than it is today, through a Roth conversion.
Illustrative numbers
A single saver covered by a 401(k) with $85,000 of modified AGI in 2026
- Contribution limit
- $7,500, or $8,600 at 50 or older, or your taxable compensation if lower
- Top of phase-out range
- $91,000 single, $149,000 joint if you are covered, $252,000 if only your spouse is covered (2026)
- Modified AGI
- Adjusted gross income figured without the IRA deduction itself, plus certain add-backs
- Width of the range
- $10,000, or $20,000 on a joint return when you are covered
Round the result up to the next $10; if it is above zero but under $200, you may deduct $200.
Traditional IRA contribution$7,500
Phase-out range (single, covered)$81,000–$91,000
Share of range left: ($91,000 − $85,000) ÷ $10,00060%
Deductible amount: $7,500 × 60%$4,500
Nondeductible basis for Form 8606$3,000
Federal tax saved at 22%$990
Only $4,500 comes off taxable income, saving about $990 because this saver’s top dollars fall in the 22% bracket for 2026. The other $3,000 still grows tax-deferred and becomes basis that won’t be taxed again, though its earnings will be. At $91,000 of modified AGI none of the contribution would be deductible, and a Roth IRA contribution would be the more common alternative.
At a glance
2026 traditional IRA deduction phase-outs by modified AGI
| Your situation | Full deduction | Partial deduction | No deduction |
|---|---|---|---|
| Neither spouse covered by a workplace plan | Any income | No phase-out | No phase-out |
| Single or head of household, covered | $81,000 or less | $81,000–$91,000 | $91,000 or more |
| Married filing jointly, you are covered | $129,000 or less | $129,000–$149,000 | $149,000 or more |
| Married filing jointly, only your spouse is covered | $242,000 or less | $242,000–$252,000 | $252,000 or more |
| Married filing separately, lived together, either spouse covered | Not available | Under $10,000 | $10,000 or more |
Put it in your plan
Traditional IRA in MoneyWhatIf
In MoneyWhatIf a traditional IRA is a pre-tax account: contributions draw on the owner’s shared IRA pool, and deductibility is reduced through the modeled 2026 MAGI phase-out ranges. Required minimum distributions start at 73, or 75 for owners born in 1960 or later, using IRS life-expectancy divisors. Withdrawals before 59½ carry a modeled 10% penalty, with a Rule 72(t) payment series as the exception you can set up, and the Tax Planning page reruns the plan with Roth conversions filling each of six federal brackets, from 10% to 35%. With the QCD switch on, declared giving can be paid from the IRA once the owner reaches the qualifying age.
Common questions
Traditional IRA FAQs
How do I claim a traditional IRA deduction on my tax return?
Enter the deductible amount on Schedule 1 of Form 1040, among the adjustments to income. Because it lowers adjusted gross income, you get it whether you itemize or take the standard deduction. Report any nondeductible part on Form 8606; you may even choose to treat an otherwise deductible contribution as nondeductible. You can file your 2026 return claiming the deduction before you make the contribution, as long as the money reaches the IRA by the due date without extensions.
Is there an age limit for traditional IRA contributions?
Not anymore. Before 2020 you couldn’t contribute for the year you reached 70½ or any later year. The SECURE Act of 2019 repealed that rule, so you can contribute at any age if you, or your spouse on a joint return, have taxable compensation. One catch: deductible contributions made at 70½ or later reduce the amount of later qualified charitable distributions you can exclude from income.
How are traditional IRA withdrawals taxed?
As ordinary income at your regular federal rates, and usually by your state, not at capital gains rates, even when the growth came from stocks. If you have basis from nondeductible contributions, part of each withdrawal is tax-free under the pro-rata rule. Custodians withhold 10% for federal tax from most IRA distributions unless you choose a different amount, which may not match what you actually owe.
Can I move a traditional IRA into a Roth IRA?
Yes, through a Roth conversion, at any income level. The taxable part of the amount converted is added to that year’s income, and since 2018 a conversion can’t be undone. Converting in low-income years, such as between retirement and the start of Social Security or RMDs, can lower lifetime taxes, but it raises this year’s bill and can raise Medicare premiums through IRMAA two years later.