Ultimate Guide On Traditional IRA vs. Roth IRA Contributions
Thursday, January 1, 2026
When it comes to retirement accounts, the biggest debate that continues to rage on is this: Traditional IRA vs. Roth IRA. You have several financial pundits that promote the traditional IRA, and you have just as many pundits that promote the Roth IRA.
There is no definitive, “one size fits all” when it comes to saving for retirement like the financial pundits would like you to believe. Instead, you need to understand your financial situation, and we’ve put together this guide that will help you to understand the important traditional IRA and Roth IRA contribution and deduction rules, as well as, strategies that could be to your long-term benefit.
This guide should help you navigate the complexities of the Roth vs. Traditional IRA debate.
Let’s get started!
I would have liked to have written a short and simple article, but that is just not possible. If you want to understand the best IRA strategy for yourself, first you have to learn about some of the complex tax rules. Then, you need to understand where your particular financial situation places you within those rules.
You can thank the US Congress for the incredible mess that it has created with IRA retirement savings rules over the years. I will not dwell on this, because it is highly unlikely that anything can or will be done to simplify the situation. US retirement savers just have to put up with the mess.
Just like general tax code reform, occasionally we hear much huffing and puffing, but we rarely see simplifying action. This IRA decision mess is the product of years of competing political interests and shifting power blocks in Washington, D.C. that have different interests related to retirement savings tax incentives. The result can be huge contrasts. For example, somehow a recent political candidate shoehorned $100 million into his IRAs, while little guys struggle to understand how to make small contributions of a few thousand dollars a year and perhaps take some deductions.
While this article will help you to understand IRA contributions, deductions, limitations, and other tax laws and rules and how they apply, you should also go to the irs.gov website and download the most recent 115 page IRS Publication 590, which is entitled “Individual Retirement Arrangements (IRAs).” The objective of this article is to help your understand what might be better decisions for your particular family situation, but only IRS Publication 590 and other IRS website materials are definitive regarding these rules.
These are the major questions that need to be answered in determining whether you can make IRA contributions and can take tax deductions for those contributions:
A traditional IRA is the original IRA which MIGHT permit you to reduce your current annual income tax payments, IF you are allowed to deduct your traditional IRA contribution from your modified adjusted gross income (AGI). Once assets have been contributed to an IRA, they are not subject to ongoing taxation, until the funds are withdrawn. Withdrawals from traditional IRA accounts are subject to ordinary income taxation on any gains above the proportional tax basis across your traditional IRAs. Penalties may apply to withdrawals taken before age 59 and 1/2.
After age 70 and 1/2, traditional IRA account holders are required to take required minimum distributions (RMDs) and to pay ordinary income tax rates on those RMDs. In effect, RMDs are the other side of the bargain made with the US federal government. When you make traditional IRA contributions, your taxes may be reduced, and you do not have to pay taxes on asset appreciation along the way. In exchange, however, in retirement you must take RMDs and pay taxes on those withdrawals.
Roth IRAs were added to the tax code through the Taxpayer Relief Act of 1997, after traditional IRAs have been around for many years. Therefore, most of the rules that apply to traditional IRAs also apply to Roth IRAs. However, IRS Publication 590 for 2013 on page 63 states: “Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions are tax free. Contributions can be made to your Roth IRA after you reach age 70 & 1/2, and you can leave amounts in your Roth IRA as long as you live.” Roth IRAs have no taxes once assets are properly contributed to or converted into a Roth account.
You must have “compensation” income in a tax year that is equal to or greater than your annual IRA contribution in that tax year. Spouses can rely upon the compensation of their partner, but that compensation much be equal to or greater than the contributions of both IRA contributions.
Compensation includes wages, salaries, commissions, self-employment income, alimony, and nontaxable combat pay. Note, however, that compensation does not include interest and dividend income, pension or annuity income, deferred compensation, or income from certain partnerships. When in doubt check IRS Publication 590.
The fact that you have compensation implies that it came from some place — most often from outside employment or self-employment. Your ability to make IRA contributions and to deduct those IRA contributions may be affected by whether or not you have a tax-advantaged retirement plan at work that you could participate in, but that you do not necessarily contribute to. This is a key distinction. The IRA tax rules do not depend upon whether you participate. All that matters is whether a retirement plan is available to you through work.
Employer plan coverage for a particular tax year depends upon whether or not an employer (or employers) whom your worked for in that tax year offered a defined contribution plan or a defined benefit plan, including any self-employment plans. For defined contribution plans, think 401k, 403b, 457, SEP IRA, SIMPLE IRA, profit-sharing plans, stock bonus plans, money purchase pension plans, etc. For defined benefit plans think pensions or any other employer retirement plan that is not a defined contribution plan.
For most wage and salary employees, employer plan coverage will be indicated by a box that is checked on their form W-2 income summary for the year from each employer. When in doubt check with the employer or employers you worked for during the tax year in question. Again, coverage is all that matters – not contributions or participation. You do not have to have made any contributions to a defined contribution plan to be covered. You do not have to accrue benefits in a defined benefits plan, and even if you decline to participate in that plan you are still covered with respect to the IRA rules. When covered by a plan at work, your ability to make IRA contributions and/or take deductions may be affected.
Whether or not you and/or your spouse are covered by retirement plans at work is a major factor in complicating the IRA rules. I will refrain from blathering on about the supposed rationale for this. As you will see below, whether you or even your spouse are covered by an employer plan at work could easily befuddle anyone who is trying to prepare for retirement. Is it really just too much to ask for a simple set of retirement savings tax incentives to encourage the US working population to prepare better for retirement?
The annual maximum traditional IRA contribution and maximum Roth IRA contribution is subject to the IRA contribution limits found here. Those over 50 years of age can make an additional $1,000 per person “catch up” contribution annually. Whether you are allowed to contribute may be influenced by your income.
For traditional IRA contributions, you may be able to deduct some or all of your annual IRA contributions, depending upon the level of your modified adjusted gross income (AGI). If you can deduct your traditional IRA contributions, that means that you will have lower federal taxable income in the current year. Your tax savings will depend upon your federal marginal income tax rate. You might be able to reduce your state and local income tax payments, as well.
Your modified AGI could be greater than your compensation. IRS Publication 590-a states: “Do not assume that your modified AGI is the same as your compensation. Your modified AGI may include income in addition to your compensation such as interest, dividends, and income from IRA distributions.”
Contributions to Roth IRA accounts never provide a deduction and thus never reduce current taxable income.
In general, for assets that are held in taxable accounts, the tax basis is the cost of the capital investment plus any legitimate transactions costs associated with making that investment. For investment assets to have a tax basis, the purchase would have been made with capital assets that had already been taxed. Furthermore, those purchase assets should not have received any tax benefit, such as depreciation, amortization, deduction or another valuation adjustment provided under the tax laws.
Because tax basis depends upon the cost of the capital investment, any subsequent appreciation on those assets will not increase the tax basis in those assets. When an asset has a positive tax basis, that tax basis amount will be deducted from the proceeds of any asset sale, before determining any taxes that might be due.
Assets contributed to tax-advantaged accounts, such as IRAs, may or may not have a tax basis, depending upon whether they have received a tax benefit. Because Roth IRA contributions do not provide a deduction against current AGI and do not reduce current income taxes, those Roth IRA contributions will always have a tax basis associated with the contributions made.
In contrast, the tax basis related to contributions to traditional IRA accounts depend upon whether they provided a current deduction (tax benefit) when contributed. If the tax rules allowed a current deduction for some or all of a contribution to a traditional IRA account, then these deductible contributions enjoy a tax benefit and will not have an associated tax basis. However, if some or all of a contribution to a traditional IRA account did not provide a current deduction against AGI, then these non-deductible contributions will have an associated tax basis. (Having fun yet?)
While assets are held in an IRA account, the difference between the fair market value of the investment assets and the tax basis equals the asset appreciation, which may be taxable upon withdrawal. Both traditional IRA and Roth IRA accounts provide for deferral of taxes on asset appreciation, while those assets remain in the account. When Roth IRA assets are properly withdrawn in accordance with the rules, there is no tax on any of this appreciation.
When traditional IRA assets are withdrawn or distributed, however, this asset appreciation is usually taxed. Such traditional IRA withdrawals are added to federal taxable income and ordinary income tax rates apply. The taxable portion of a withdrawal is determined across all of an individual’s traditional IRA accounts, rather than on an account by account basis.
Tax basis amounts across all traditional IRA accounts that an individual owns are added together and this number is then divided by the total end-of-year asset value of all these traditional IRA accounts. This provides a tax basis percentage to determine how much of total annual withdrawals would be excluded from taxation. The remaining portion of total annual withdrawals would then be added to taxable income and be taxed at ordinary income tax rates.
Compared to always non-deductible Roth IRA contributions, for most taxpayers it would be more beneficial to make traditional IRA contributions, when they provide a deduction and reduce current taxable income. While this is explained in much more detail here, in general the vast majority of taxpayers will obtain the greatest benefit by reducing their current taxes and investing those tax savings in a taxable investment account.
By making a traditional IRA contribution and investing the tax savings, this strategy obtains the long-term retirement investment benefits of both:
For the vast majority of investors preparing for retirement, this is a superior strategy compared to making a Roth IRA contribution and not saving on their current income tax bill. This is true even though traditional IRA assets would be taxed at ordinary income tax rates through required minimum distributions (RMDs) during retirement, while Roth IRA assets would not be taxed.
All too often, you will hear the over-simplifying statement that the investment strategy difference between making traditional IRA contributions versus Roth IRA contributions depends upon current versus future income tax rates. This simplistic statement is true, but there is a lot more to the analysis. To understand what your tax rates in retirement might be, you need to project your total retirement income.
Incidentally, this really has little to do with any speculation about whether tax rates will change over the long-term. They may or they might not. Instead, what this really comes down to how wealthy you will be in retirement and how large your other retirement income sources might be.
What will drive your tax rates in retirement is your projected retirement savings and asset accumulation plus your projected retirement income from Social Security, pensions, and annuities. Unfortunately, the great majority of people do not save and invest a high enough portion of their earned income while they are working to become wealthy or even very well off.
Only a minority of the US working population will save enough so that their RMDs plus their other taxable retirement income, such as Social Security, pension, and annuity payments will create high enough taxable income in retirement. Those who do not save enough will not accumulate enough in their IRAs and employer plans (401k’s, etc.) to keep them up in the higher income tax brackets that they paid, when they were working. Such workers should take advantage of available deductions for traditional IRA contributions and invest the tax savings, instead of making non-deductible Roth IRA contributions.
There are several important caveats that you should understand about this preference for traditional IRA contributions over Roth IRA contributions for most people. First, there are situations detailed below where your income and employer plan coverage will prevent you from taking an traditional IRA deduction, but you can still choose whether to make a non-deductible traditional IRA contribution or a Roth contribution.
In those situations, you should always choose the Roth IRA contribution. Since there is no current income tax reduction advantage to a traditional IRA contribution and Roth assets will not be taxable in retirement, Roth contributions have the clear advantage.
Second, to make the traditional IRA contribution strategy work for you, you need to invest your tax savings on the traditional IRA deductible contributions for the long-term. If you do not, then you are not building up any assets in taxable investment accounts from these tax savings. Without these compounded investments related the initial tax savings, you will not anything to counterbalance and exceed the value of the taxes paid through forced RMDs on traditional IRA assets in retirement.
In essence, the justification for preferring traditional IRA contributions stems from the discipline not to consume the tax savings derived from deductible IRA contributions. If you do not plan your personal finances and you will just spend whatever you have left over, this means that you are not controlling your consumption expenditures.
For people, who have this “spend whatever is left over” characteristic, Roth IRA contributions could be a better decision, despite the fact that making these Roth contributions would be an inferior tax optimization strategy. In effect, making Roth IRA contributions forces you to consume less, because you do not have the tax savings left over to spend. The benefit is that those Roth IRA assets will not be taxed in retirement, and you will have more to live on.
Finally, you should realize that all of this depends upon your long-term financial planning and success in saving for retirement. Currently deductible IRA contributions are a-bird-in-the-hand, if you save and invest those tax deduction savings. What will happen to your taxes in retirement may or may not be two-birds-in-the-bush.
For example, the minority of people who save diligently and at high rates for retirement, can justify making Roth contributions and foregoing current tax deductions for traditional IRA contributions. These people could reasonably expect to build up enough assets to face higher tax rates in retirement.
But, what might happen over time? Let’s say a 40-year-old person planned to retire at age 65 and expected by then to have built up significant retirement assets that would incur relatively high income tax rates in retirement. This higher expected retirement tax rate was what would justify preferring Roth contributions over deductible traditional IRA contributions along the way.
However, what if at age 60, that person changes his or her mind? When many people get older, they decide that that life is too short to stay in harness working at a job that might not be terribly fulfilling. These people might decide that they have accumulated enough and could easily scale back their consumption a bit to be free of working.
From 60 to 65, this early retiree would burn up some retirement savings. Reducing retirement assets over these five years could easily drop their retirement tax rates to the point that the original preference for Roth IRA contributions would be negated. Early retirement could kill the two-birds-in-the-bush and make the original bird-in-the-hand the better choice.
Note: some readers might wonder how important Roth IRA versus traditional IRA tax optimization is over a lifetime. In the face of the complexity of the tax rules, some might hope to dismiss this subject as relatively unimportant. After all, individual IRA contributions are limited to $7,500 to $8,600 (over age 50) per year per person. Over a thirty year working career with retirement at age 65, at today’s maximum contribution rates that would be roughly $210,000 contributed.
Some might say that getting the traditional IRA versus Roth IRA optimization question right might make a few tens of thousands of dollars of difference by the time one retires. Of course, this ignores compounded investment growth over decades, which could increase these amounts many times, but let us allow that to slide for now.
These traditional IRA versus Roth IRA questions are really more important, because they also have a larger context. If you understand traditional IRA versus Roth IRA trade-offs, you can also understand a broader set of trade-offs with even larger financial impacts.
First, a large portion of workers under 401k, 403b, and 457 retirement plans have what is called a designated Roth contributions option with the same trade-offs as Roth IRAs. However, these employer plan contributions have much higher limits. For example, 2026 401k contributions limits are $24,500 to $35,750 (depending on age) per year per person. Over a thirty year working career with retirement at age 65, at today’s maximum contribution rates that would be over $700,000 contributed. Clearly, the stakes are higher in getting those decisions right. The correct decision could result in greater assets that could cover a few more years of expenses over a long retirement.
Second, Investment Company Institute research indicates that about 90% of the growth in IRA assets from 1996 to 2008 was associated with rollovers from employer plans into IRA, and only about 10% was associated with direct traditional IRA or Roth IRA contributions. Assets rolled-over into traditional IRA accounts can be converted into Roth assets by anyone willing to pay the taxes due.
Many parts of the financial industry are applying heavy pressure to clients to convert to Roth assets. However, such conversions would be beneficial only to a small minority of the investor population, and conversions require years to break-even on the taxes paid at the outset. Again, understanding the Roth IRA versus traditional IRA tradeoffs discussed here would apply to Roth conversions.
The section focuses on those who file their US federal tax returns as single taxpayers. The section that follows will discuss married couples who submit tax returns as married filing jointly.
This section presents four summary tables. The first two tables presents some of the key rules for single taxpayers related to traditional IRA and Roth IRAs. The last two tables suggest optimal contribution strategies for single taxpayers who either are or are not covered by a retirement plan at work.
This table summarizes traditional IRA contribution rules for single taxpayers the first column indicates modified AGI levels and the second indicates whether a worker is covered by an employer plan. For those who are not covered by an employer plan, see the first row of the table. Single persons who are not covered by an employer plan can make the maximum traditional IRA contribution no matter how high their income (AGI) might be. Their IRA contribution is deductible and will reduce their taxable AGI. There is no tax basis for either these traditional IRA contributions or for any subsequent asset appreciation in the IRA account.
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Traditional IRA Contributions – Tax Year 2026 – Single |
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|---|---|---|---|---|---|
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Workplace Retirement Plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis Of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
|
$7,500 (or $8,600 if 50 or older) |
|||||
|
AGI From to $81,000 to $91,000 |
$7,500 (or $8,600 if 50 or older) |
Equals the non-deductible portion of the contribution |
|||
|
$7,500 (or $8,600 if 50 or older) |
|||||
Footnotes to the table above:
* Eligibility to participate in a plan at work is what counts; not whether one actually participates.
** Earned income must be equal to or greater than contributions.
*** Tax basis reduces the portion of withdrawals that is subject to ordinary income taxes. Total tax basis across all traditional IRA accounts is added and then divided by total asset value to determine the portion of any withdrawal that would not be subject to taxes. This does not require understanding how securities are valued by the markets. It just requires totaling the fair market value of those securities that an individual holds in various traditional IRA accounts at the end of the tax year.
Rows 2, 3, and 4 of this table cover the situation where a single taxpayer is covered by a retirement plan at work. In this situation, he or she can still make a contribution no matter what their AGI might be. However, there are restrictions on deducting that contribution from current AGI, depending upon income.
Up to $81,000 of AGI the contribution is deductible, but between $81,000 and $91,000 AGI the right to deduct contributions is phased-out proportionally. Above $91,000 of modified adjusted gross income, none of the contribution is deductible. The portion of the IRA contribution that was deductible will have no tax basis. Whatever portion of the traditional IRA contribution that was not deductible will have a tax basis.
This table summarizes Roth IRA contribution rules for the single taxpayer filing status. With Roth IRAs, whether or not one is covered by a retirement plan at work does not matter. Roth contributions cannot be deducted, so one does not need to be concerned about deduction phaseouts. Because any Roth IRA contributions are no tax deductible, they have a tax basis equal to the contribution.
However, there is a new twist with Roth IRAs when compared to traditional IRAs. The right to contribute to a Roth IRA depends upon modified adjusted gross income. The right to contribute is not impaired for single taxpayers with up to $153,000 in AGI. Between $153,000 and $168,000 AGI the right to contribute is phased-out proportionately over this income range. When a single taxpayer has AGI above $168,000 they are prohibited from making any contributions.
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Roth IRA Contributions – Tax Year 2026 – Single |
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|---|---|---|---|---|---|
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Workplace Retirement Plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis Of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
Equals the reduced contribution |
||||
|
AGI From to $153,000 to $168,000 |
Max phased out proportional |
Equals the reduced contribution |
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Footnotes to the table above:
* Eligibility to participate in a plan at work is what counts; not whether one actually participates.
** Earned income must be equal to or greater than contributions.
For single taxpayers who are not covered by a retirement plan at work, IRA contribution strategies are relatively straightforward. Their contributions are deductible, no matter what their AGI is. Therefore, most single taxpayers who are not covered by retirement plans at work would usually find traditional IRA contributions to be more beneficial.
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Traditional Contribution Strategies – No Employer Plan – Single |
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|---|---|---|---|---|
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Can you make a traditional IRA contribution? |
Can you deduct a traditional IRA contribution? |
Can you make a Roth IRA contribution? |
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|
Traditional IRA, unless income is high, evaluate Roth contributions and conversions. |
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The overview in an earlier section of this article series already discussed traditional IRA versus Roth IRA contribution trade-offs. However, there is one thing about this situation that is worthy of an extra note. The mere fact that this single working is not covered by a retirement plan at work means that he or she will not have that opportunity to build up assets in an employer plan. The fact that IRA contributions are currently limited to single digit thousands of dollars annually, would limit this worker’s retirement savings potential.
A conscientious saver in this situation would have two retirement savings choices. First, he or she could save more in taxable investment accounts and manage their investments to minimize and defer capital gains taxes. (By saving more, I do not just mean saving the value of the tax deduction — I mean substantial additional savings as well.) Second, this person could/should look for another employer that does offer a retirement plan at work that would allow for significantly greater savings than are possible than with just IRAs.
For single taxpayers who are covered by a retirement plan at work, IRA contribution strategies get more complicated. As the chart indicates there are a variety of income levels that would shift the traditional IRA versus Roth IRA contribution decision.
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Traditional vs. Roth IRA Contribution Strategies – Employer Plan Coverage – Single |
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|---|---|---|---|---|
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Can you make a traditional IRA contribution? |
Can you deduct a traditional IRA contribution? |
Can you make a Roth IRA contribution? |
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|
AGI from $81,000 to $91,000 |
Shift from Traditional to Roth IRA contributions |
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|
AGI from $91,000 to $153,000 |
||||
|
AGI from $153,000 to $168,000 |
Shift from Roth IRA to Traditional IRA contributions |
|||
|
Traditional IRA contributions; evaluate Roth conversions |
||||
To summarize, here is the reasoning for the contribution preferences listed in this chart:
Surprise! The traditional IRA versus Roth IRA tax rules for married taxpayers filing jointly are even more complicated than those for single taxpayers. The added complications are due to the traditional IRA tax deduction rules. Depending upon your family income and upon whether or not you or your spouse was covered by a retirement plan at work during the year, your deduction for your traditional IRA contribution may be reduced or eliminated.
The sections below will explain the different traditional IRA deductions rules for these situations:
For Roth IRAs, none of these complications will matter for married taxpayers filing jointly, simply because Roth contributions are never deductible. The complexity of the interaction between traditional IRA and Roth IRA rules plus the effects of employer plans and rollovers means that it is impossible for anyone to calculate all the tax interactions over a lifetime. To optimize one’s strategy, while working and in retirement, it is necessary to use personal tax planning software that automatically calculates all the various taxes over a lifetime and that also keeps track of the tax impacts of all these tax-advantaged retirement plan incentives.
Finally, note that receipt of Social Security benefits can also affect the deductibility of traditional IRA contributions, but this additional complexity is beyond the scope of this article. See IRS Publication 590 for more information.
Because they are somewhat simpler, first, I will summarize the key Roth IRA rules and strategies for married taxpayers filing jointly. The rules are more simple because they do not depend upon whether you or your spouse are covered by a retirement plan at work. Roth IRA contributions are never deductible, and thus it does not matter whether you are covered by a retirement plan at work.
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Roth IRA Contributions – Tax Year 2026 – Married Filing Jointly |
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|---|---|---|---|---|---|
|
Workplace Retirement Plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis Of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
Equals the reduced contribution |
||||
|
AGI From to $242,000 to $252,000 |
Max phased out proportional |
Equals the reduced contribution |
|||
As the chart indicates, Roth IRA contributions made by either spouse may be limited depending upon family modified AGI. For AGI up to $242,000 in 2026 there is no Roth IRA contribution limitation. From AGI of $242,000 up to $252,000, the right to made contributions is phased out. Above $252,000 of modified AGI, contributions are prohibited.
Any contribution will have a tax basis equal to that contribution. Any appreciation in the account will not be taxed subsequently, as long as withdrawals are done properly according to the applicable withdrawal rules. See IRS Publication 590-a for more information on Roth IRA account withdrawal rules.
This table summarizes the rules for traditional IRA contributions, deductions, and tax basis, for married taxpayers filing jointly, when neither spouse is covered by a retirement plan at work. Just like single taxpayers without retirement plans at work, married taxpayers filing jointly without work plans can make the maximum traditional IRA contribution no matter how high their income (AGI) might be. Their IRA contribution is deductible and will reduce their taxable AGI. There is no tax basis for either these traditional IRA contributions or for any subsequent asset appreciation in the IRA account.
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Traditional IRA Contribution 2026 – No Employer Plan – Married Filing Jointly |
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|---|---|---|---|---|---|
|
You or spouse covered by workplace retirement plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
This next table summarizes traditional IRA versus Roth IRA contribution considerations for married tax filers, when neither is covered by a work plan. Because married taxpayers at any AGI level can make either traditional IRA or Roth IRA contributions and take current deductions for traditional IRA contributions, most should choose traditional IRA contributions.
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Traditional vs. Roth IRA Contribution Strategies – No Employer Plan – Married Filing Jointly |
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|---|---|---|---|---|
|
Can you make a traditional IRA contribution? |
Can you deduct a traditional IRA contribution? |
Can you make a Roth IRA contribution? |
||
|
Traditional IRA, unless income is high, evaluate Roth contributions and conversions. |
||||
However, if they have consistently high income and high savings, which are sustained over the years they might evaluate making Roth some contributions instead and/or evaluate converting traditional IRA assets into Roth assets. There would be no tax basis for these conversions, so taxes would be due when converting.
This table summarizes traditional IRA rules, where a married taxpayer filing jointly is covered by a retirement plan at work. If the individual is covered by a retirement plan, it does not matter whether or not the spouse also has a retirement plan at work.
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Traditional IRA Contribution Strategies 2026 – Employer Plan – Married Filing Jointly |
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|---|---|---|---|---|---|
|
You or spouse covered by workplace retirement plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
|
AGI from $129,000 to $149,000 |
$7,500 (or $8,600 if 50 or older) |
100% to 0% phased out over the AGI range |
Equals the non-deductible portion of the contribution |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
In this situation, the married taxpayer can still make a contribution no matter what the family AGI might be. However, there are restrictions on deducting that contribution from current modified AGI, depending upon income.
Up to $129,000 of AGI the contribution is deductible, but between $129,000 and $149,000 AGI the right to deduct contributions is phased-out proportionally. Above $149,000 of modified adjusted gross income, none of the contribution is deductible. The portion of the IRA contribution that was deductible will have no tax basis. Whatever portion of the traditional IRA contribution that was not deductible will have a tax basis.
Concerning the traditional IRA versus Roth IRA contributions strategy for a married taxpayers with a work plan, decisions can get a bit involved, of course. This next table summarizes the key data and makes suggestions depending upon family modified AGI.
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Traditional vs. Roth IRA Contribution Strategies – Employer Plan Coverage – Married Filing Jointly |
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|---|---|---|---|---|
|
Can you make a traditional IRA contribution? |
Can you deduct a traditional IRA contribution? |
Can you make a Roth IRA contribution? |
||
|
AGI from $129,000 to $149,000 |
Shift from Traditional to Roth IRA contributions |
|||
|
AGI from $149,000 to $242,000 |
||||
|
AGI from $242,000 to $252,000 |
Shift from Roth IRA to Traditional IRA contributions |
|||
|
Traditional IRA contributions; evaluate Roth conversions |
||||
To summarize, here is the reasoning for the contribution preferences listed in this chart:
As if the married filing jointly IRA rules were not complicated enough already, there is a final situation where the IRA rules differ. If you are not covered by a retirement plan at work, but your spouse is covered by a work plan, then these rules apply:
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Traditional IRA Contribution 2026 – 50/50 Employer Plan – Married Filing Jointly |
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|---|---|---|---|---|---|
|
You or spouse covered by workplace retirement plan? |
Maximum Annual Contribution |
Tax Basis of Contribution |
Tax Basis of Asset Appreciation |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
|
AGI from $242,000 to $252,000 |
$7,500 (or $8,600 if 50 or older) |
100% to 0% phased out over the AGI range |
Equals the non-deductible portion of the contribution |
||
|
$7,500 (or $8,600 if 50 or older) |
|||||
In this situation, he or she can still make a contribution no matter what the family modified AGI might be. However, there are restrictions on deducting that contribution from current AGI, depending upon income. Up to $242,000 of AGI the contribution is deductible, but between $242,000 and $252,000 AGI, the right to deduct contributions is phased-out proportionally. Above $252,000 of family modified adjusted gross income, none of the contribution is deductible. The portion of the IRA contribution that was deductible will have no tax basis. Whatever portion of the traditional IRA contribution that was not deductible will have a tax basis.
This next table summarizes the IRA contributions strategy for a married taxpayer filing jointly, when the taxpayer does not have a work plan, but the spouse does have a retirement plan at work.
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Traditional vs. Roth IRA Contribution Strategies – 50/50 Employer Plan Coverage – Married Filing Jointly |
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|---|---|---|---|---|
|
Can you make a traditional IRA contribution? |
Can you deduct a traditional IRA contribution? |
Can you make a Roth IRA contribution? |
||
|
AGI from $242,000 to $252,000 |
Traditional IRA contributions; evaluate Roth conversions |
|||
|
Traditional IRA contributions; evaluate Roth conversions |
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Here is the reasoning for the contribution preferences listed in this chart:
As explained in previous sections of this article series, in certain circumstances higher income single taxpayers or married taxpayers filing jointly can still make non-deductible traditional IRA contributions, but they are prohibited from making Roth contributions. Because these traditional IRA contributions are non-deductible and have a tax basis, at the outset, they would seem to be no different than Roth IRA contributions, but they will be taxed in retirement.
Over the decades, investment assets in either type of IRA account could appreciate substantially, but the tax basis would not change over time. In retirement, Roth IRA withdrawals would not be taxed. However, traditional IRA withdrawals above any tax basis would be taxed at ordinary income tax rates. Clearly, holding IRA assets in Roth accounts would be much more desirable, if traditional contributions do not provide a deduction to reduce current income and income tax payments.
Is there a way to turn traditional IRA assets into Roth IRA assets? Yes, and that process is called a “Roth IRA conversion,” which is available to anyone not matter what their taxable income might be in a given year. Roth IRA conversions can be done by any taxpayer, even if their higher income had prohibited them from making a Roth IRA contribution in the same year. All conversions are treated as rollovers, but the normal one-year waiting period for rollovers does not apply to conversions.
Traditional IRA to Roth IRA conversions require paying ordinary income taxes on any conversion amount above the tax basis that is associated with any non-deductible contributions to traditional IRA accounts.
Some of you might say, “Great, all I have to do is: A) to make a non-deductible traditional IRA contribution, and then B) immediately convert those assets into a Roth IRA, before there is any investment appreciation. Then, when I file my taxes, I will report the conversion amount and subtract the tax basis, which will be about the same. Therefore, there will be no income added to my tax return, and my conversion will be tax-free. I will have my cake and eat it too through this no tax “backdoor” Roth IRA conversion.
The catch to this potential “no tax” Roth IRA conversion strategy is that the taxable amount is not determined on an IRA account by IRA account basis. As explained in the first part of this article series: “The taxable portion of an traditional IRA withdrawal is determined across all of an individual’s traditional IRA accounts, rather than on an account by account basis.” This is also how taxes are determined for any conversion of traditional IRA assets into Roth IRA assets, because conversions are treated as taxable withdrawals.
For Roth IRA conversions, tax basis amounts across all traditional IRA accounts that an individual owns are added together. This number is then divided by the total end-of-year asset value of all these traditional IRA accounts. This fraction provides a tax basis percentage to determine how much of total annual conversions would be excluded from taxation. The remaining portion of total annual conversions would then be added to taxable income and be taxed at ordinary income tax rates.
For example, let us say a taxpayer has only one very recently opened traditional IRA account. He makes an initial contribution to that new traditional IRA account of $5,000, which is non-deductible because of this individual’s modified adjustable gross income (AGI). Then, he could do a conversion to a Roth IRA and pay no taxes, if there was no appreciation following the contribution.
However, if this individual had other IRA accounts already, this “backdoor” Roth IRA conversion probably would not be free of taxes. Let us modify the example above and assume that that this individual had one or more previously established traditional IRA accounts with a total year end value of $95,000. Previously, this person had always been able to make deductible contributions, because his AGI in previous years had allowed all previous contributions to be deductible. Therefore, there would be no tax basis associated with these $95,000 of traditional IRA assets.
Next, he makes the current $5,000 non-deductible contribution to a new or existing traditional IRA account. Very soon he converts the $5,000 into a Roth IRA, before there was any asset appreciation. Thinking this is a tax free conversion, he is quite happy — until income tax filing time comes around the following spring. Then, he becomes sad.
While filing, he finds out that the tax rules require him to add the total tax basis across all traditional IRA accounts, which is $5,000. Then, he must divide this total tax basis by the total value of his traditional IRA accounts at the end of the year, which we assume would be $100,000. The result is 5%.
When filing his taxes he is allowed to attribute 5% of his conversion amount or $250 as the tax basis. He is allowed to subtract only $250 from $5,000. The remaining $4,750 of the conversion is taxable. This $4,750 is added to his taxable income and he must pay whatever his total marginal ordinary income tax rates might be at the US federal, state, and local levels.
The moral of this sad taxpayer story is that you can only do a tax free Roth IRA conversion, if you do not have other IRA accounts that house previously deductible asset contributions and subsequent asset appreciation. So, what does one do to make sure that they can capitalized on this no-tax backdoor Roth IRA conversion strategy?
Here are some thoughts:
Note that whether or not a person ever intends to do any no-tax backdoor Roth conversions, low income years provide any traditional IRA account holder with an opportunity to do a lower tax Roth conversion. This is especially true if they have built-in tax deductions that would otherwise go to waste from a tax reduction standpoint. Of course, this person still needs to have sufficient assets in their taxable accounts to pay the Roth IRA conversions taxes, while also paying living expenses in such low income years.
Above, I suggested that you should not do any rollovers of employer plan assets into rollover IRA accounts, if you think that you might later be in a position to take advantage of the no-tax backdoor Roth IRA conversion maneuver. While rollovers most commonly occur after a person has stopped working for an employer, you should note rollovers may be possible for some who remain employed. Called “in-service” rollovers, some employer plans allow a current employee to rollover some or all of their employer plan assets into a rollover IRA.
Rollover IRA assets from employer plans usually have no tax basis or a very low tax basis relative to the total investment value. If these employer plan assets are rolled over into a traditional IRA, then they will just add to the total end-of-year market value across all of your traditional IRA accounts. Therefore, they would further dilute any tax basis you would have related to new non-deductible contributions.
Elsewhere, I have written about how certain segments of the financial industry, routinely recommend that individuals roll over their employer plan assets into traditional rollover IRA accounts. These rollovers certainly benefit the securities industry, because they get control of the assets and can charge their myriad of excessive fees once your assets are rolled over into an account that they manage. However, this might not always be the best thing for you as the owner of a retirement account held in an employer plan.
Employees who leave employment should understand that they have other options in addition to rolling over their employer retirement plan assets into a traditional IRA. First, they can simply do nothing and stay in their former employer’s retirement plan in most cases.
Second, if allowed, often they can rollover their retirement savings into a retirement plan sponsored by a new employer. If they have any self-employment income, this second option could include rolling over into a self-employed retirement plan that they set up for themselves. Finally, they could cash out their retirement account, although this is usually is not a good idea.
As the fourth alternative, if you did not like the investment choices in your former employers’s plan or you are not permitted to remain in that plan, you could roll over your retirement assets into a traditional IRA with a firm that offers better choices. When you do this, you will disrupt your ability to take advantage of the no-tax backdoor Roth IRA conversion strategy. However, this disruption could be temporary, if you manage your rollovers properly.
In many cases traditional rollover IRA accounts can subsequently be rolled over into another employer retirement plan, including a self-employment plan that you set up for yourself. Therefore, if you must rollover assets from an employer plan into a rollover IRA account, make sure to understand the rollover rules. IRS Publication 590 explains these rollover rules, which of course are convoluted.
Make certain that you keep this rollover IRA account separate from all of your other traditional IRAs. If you do so, you should be able to make a subsequent rollover of those account assets into another employer plan. However, if you “commingle” these rollover assets in this account with other IRA assets, you could forfeit the right to make the subsequent rollover into an employer plan.
An example of commingling assets would be to make an annual IRA contribution to that account. Remember that you do need to do make annual contributions to your rollover account, because you can set up a separate traditional IRA account instead. Financial companies routinely hold multiple IRA account for individuals. Keeping your rollover IRA separate should not be a big deal.
As discussed above, when a person is figuring the taxes on a Roth IRA conversion, they are required to add up all of their traditional IRA holdings at the end of the year to determine the tax basis and taxable proportions. They must add up all traditional IRA account balances, but only there traditional IRA account balances. This does not include Roth IRA account balances, the IRA assets owned by a spouse, or any assets held within a previous or current employer plan, such as a 401k, 403b, 457 plan, etc.
This is why it is very important to preserve the ability to do a subsequent rollover from an IRA into an employer plan. Once you do that subsequent rollover to an employer plan, those assets are no longer in a traditional IRA account. Therefore, they are no longer part of the Roth IRA conversion tax basis calculation.
This section does not add any “how-to” information about IRAs. It is a brief post-script rant about the complexity and stupidity of US retirement savings tax incentives. It may be of interest to you, and it might help you to confront your frustration, if you have had the interest, time, and fortitude to read to the end of this very long article.
US Social Security retirement payments will provide only a fraction of most people’s needed retirement income. Corporate employers en masse largely have dumped defined benefit retirement pension programs. This has shifted the entire burden of retirement preparation to largely uninformed employees. Many millions of Americans are simply ill-prepared for retirement and are not on a savings track that is likely to lead to a comfortable retirement.
One would think that US national policy should incentivize the population to save and invest for retirement. From one perspective, it could be argued that there are a wealth of available US tax-advantaged retirement programs that any diligent person could take advantage of. However, these retirement savings incentives are extremely and excessively complex. All these rules require extraordinary diligence to understand and to capitalize upon.
Few individuals clearly understand these incentives and few have access to unbiased and cost efficient professional advice about what to do. These rules are even too complex for many financial industry professionals, who also do not understand them and have not committed them to memory.
Most individuals simply do not have access to reasonably in depth and unbiased advice about what to do. Only a minority of employers have chosen to provide access to advisory services for their employees. Everyone else is left to rely upon their own wits and to do their own proactive research about what would be best to do.
As pension programs have died, they have been replaced with good old American self-reliance and the survival of the fittest. Welcome to the individualized retirement planning, which will end as hunger games for many. To succeed at these retirement hunger games, you must save adequately, invest efficiently, minimize taxes, and withdraw carefully. By streamlining retirement savings tax incentives, the US government could much more effectively promote the general welfare.
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