Don’t Forget Your 2025 IRA Contribution: Tax-Deductible or Not

You have until April 15, 2026, to contribute to an IRA for 2025. Contributions may be tax-deductible depending on your circumstances, but even without a deduction, adding to an IRA remains a wise financial choice.

How much can you Contribute?

For tax year 2025, you can contribute up to $7,000 to your IRA. If you’re age 50 or older, you can add an extra $1,000 “catch-up contribution”, bringing your total allowed contribution to $8,000.

Your contribution generally can’t exceed your earned income. However, if you’re married, a spousal IRA allows a working spouse to contribute on behalf of a nonworking spouse.

Keep in mind, the annual limit applies across both traditional and Roth IRAs combined. Meaning, you can split your contributions between the two (traditional and Roth) as long as your total doesn’t exceed the limit.

Can you Deduct your Contribution?

One of the main benefits of a traditional IRA is the potential tax deduction. If you qualify, your contribution can reduce your taxable income for 2025, and your investments grow tax-deferred until retirement.

If neither you nor your spouse participates in an employer-sponsored retirement plan, your contribution is generally fully deductible.

If you (or your spouse) are covered by a workplace plan, your deduction may be limited based on your income. For 2025, the deduction begins to phase out at the following modified adjusted gross income (MAGI) ranges:

• Single or Head of Household: $79,000–$89,000

• Married Filing Jointly (covered by a plan): $126,000–$146,000

• Married Filing Jointly (spouse covered): $236,000–$246,000

• Married Filing Separately: $0–$10,000

If your income falls within these ranges, you may qualify for a partial deduction. Above them, the deduction is eliminated.

What about Roth IRAs?

Roth IRA contributions are not tax-deductible; however, they provide a significant long-term advantage in the form of tax-free withdrawals during retirement. Once the account has been open for at least five years and the account holder reaches age 59½ or older, both contributions and investment earnings may be withdrawn without incurring taxes.

However, eligibility to contribute to a Roth IRA is also based on income. For 2025, contribution limits phase out at:

• Single or Head of Household: $150,000–$165,000

• Married Filing Jointly: $236,000–$246,000

• Married Filing Separately: $0–$10,000

If your income falls within these ranges, you can make a reduced contribution. Above them, you’re no longer eligible to contribute directly to a Roth IRA.

Should you consider a Nondeductible IRA?

If your income is too high for a deductible traditional IRA or a Roth IRA, a nondeductible traditional IRA can still offer value. While you won’t get an immediate tax break, your investment earnings grow tax deferred.

In retirement, you’ll only pay taxes on the earnings and not the original contributions.

A nondeductible IRA can also open the door to a “backdoor” Roth strategy. This involves making a nondeductible contribution to a traditional IRA and then converting it to a Roth IRA. While conversions are typically taxable, in this case, taxes are usually limited to any earnings generated before the conversion.

Don’t wait until it’s too Late

Making a 2025 IRA contribution can help reduce your current tax bill or set you up for tax-free income in retirement. It’s a valuable opportunity to build long-term savings with tax advantages.

Reminder: The deadline is April 15, 2026, even with a tax extension. Make sure your contribution is labeled for the 2025 tax year.

If you have questions about your eligibility or the best strategy for your situation, it’s worth getting guidance before the deadline.