What's Your Deduction?
What made the original IRA a no-brainer investment was a simple, indisputable fact: Contributions were deductible.

What made the original IRA a no-brainer investment was a simple, indisputable fact: Contributions were deductible. Put $4,000 into an IRA, write off $4,000 on your tax return.
In the 25% bracket, that saves $1,000 and delivers instant gratification. But there are some restrictions to prevent some higher-income earners from getting that deduction. There are two tests that determine how much you can deduct if you save within a traditional IRA:
- Company plan test. Are you an active participant in a company retirement plan? You are, as far as the law is concerned, if you are eligible during any part of the year to participate in a pension, profit sharing, or similar plan. (If you are in a profit-sharing plan but no contribution is made to your account for the year, however, you are not considered covered for that year.) Or if you make a contribution to your 401(k) anytime during the tax year.The Form W-2 you receive from your employer should indicate to you -- and the IRS -- whether you're covered.If you are not tripped up by the company-plan test, you can deduct IRA contributions regardless of how high your income is.
- Income test. If you are covered by a plan, you may lose your right to the deduction. The write-off is phased out for active participants in company plans whose adjusted gross income(AGI) -- before subtracting IRA contributions -- exceeds certain levels. See IRS Publication 590 for more information.
You could still contribute up to the annual contribution limit to your account; it simply could not be deducted from your tax bill.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Do nondeductible contributions make sense?
Before Congress created the Roth IRA, nondeductible contributions to a regular IRA made good financial sense because -- deductible or not -- money inside an IRA grows without annual interruption from the IRS. Now, however, it would be a serious blunder for anyone who qualifies to use a Roth -- and that's almost everyone -- to make nondeductible contributions to a regular IRA.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
How to Access Private Markets with Interval Funds
Let's explore how interval funds work — and how they're opening the doors to private market investing.
By Nicholas Pope
-
Bouncing Back: New Tunes for Millennials Trying to Make It
Adele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
By Alvina Lo
-
Trump’s Tax Cut Risks Your SNAP, Medicaid Benefits
Tax Cuts The GOP budget blueprint could slash lifesaving programs for millions of U.S. households.
By Gabriella Cruz-Martínez
-
Missed Tax Day? Nearly One Million Taxpayers Still Can File and Claim Valuable Tax Refunds
Tax Refunds As many as one million taxpayers could be missing out on a significant tax refund.
By Gabriella Cruz-Martínez
-
Which Generation Pays the Most Tax in the US?
Tax Burden Polls show that most people feel like taxes are unfair. But which age group bears the brunt of the tax burden in the United States?
By Kelley R. Taylor
-
How the Trump Harvard IRS Tax Threat Could Impact You
Tax Law Trump's latest higher education showdown raises fundamental questions that could reach beyond Harvard's nonprofit tax status.
By Kelley R. Taylor
-
Tax Day 2025: Don’t Miss These Freebies, Food Deals and Discounts
Tax Day You can score some sweet deals on April 15 in some select restaurants like Burger King, Shake Shack, and more.
By Gabriella Cruz-Martínez
-
Tax Time: Does Your Kid Influencer Owe Taxes?
State Tax Some minors are making big money on social media. Here’s how to know if they need to file taxes.
By Gabriella Cruz-Martínez
-
Did Florida’s Chance at $1,000 in Property Tax Rebates Vanish?
State Taxes The Florida Legislature bypassed Gov. Ron DeSantis’ wish to cut property taxes and instead voted to lower the state’s sales tax.
By Gabriella Cruz-Martínez
-
How Caregivers for Adults Can Save on Taxes in 2025
Tax Breaks Caring for your parent or spouse can be stressful, but the IRS offers tax breaks for qualifying taxpayers. Here they are.
By Kate Schubel