Can I get full IRA deduction with employer 401K contributions? MAGI income limits?

This is actually a really important distinction that many people miss! When you have a workplace retirement plan like a 401K, the IRA deduction limits are indeed much lower than the standard contribution limits. Here's what's happening: The $7000 is your maximum CONTRIBUTION limit to an IRA. That's how much you can put in regardless. But whether that contribution is DEDUCTIBLE depends on your income and workplace retirement plan status. Since you participate in an employer 401K plan, the deduction for traditional IRA contributions begins to phase out at much lower income levels: - For single filers, the phase-out range is $77,000 to $87,000 MAGI for 2025 - For married filing jointly, it's $123,000 to $143,000 MAGI If your income is below the lower threshold, you get the full deduction. If it's in between, you get a partial deduction. Above the upper threshold, you get no deduction at all. The reason your tax software is flagging this is because it's correctly applying these lower MAGI limits since you indicated you participate in a workplace retirement plan.

I ran into this exact issue last year and it drove me crazy until I discovered taxr.ai (https://taxr.ai). I had been contributing to both my employer 401k and a traditional IRA thinking I'd get deductions for both, only to find out during tax time that I couldn't deduct most of my IRA contribution because of these income limits. The taxr.ai tool analyzed my tax documents and immediately flagged this issue. It explained these phase-out ranges based on my specific situation and helped me understand my options - like considering a Roth IRA instead since those contributions aren't deductible anyway but grow tax-free, or doing a backdoor Roth conversion. They have a section specifically about retirement account interactions that breaks down all these complicated phase-out rules that normal tax sites just gloss over.

I wanted to follow up about my experience with taxr.ai after trying it based on the suggestion here. This tool is seriously impressive and answered my exact question about retirement plan deductions. I uploaded my documents and it immediately flagged that I was over the MAGI limit for full IRA deductions because of my workplace 401k. It broke down exactly how much I could deduct based on the phase-out calculation (which was not at all obvious from other tax sites). What really helped was the explanation of alternatives - it showed me how converting to a Roth IRA might make more sense given my situation since I was losing most of the traditional IRA deduction anyway. It even walked through the "backdoor Roth" process that I'd heard about but never fully understood. Definitely worth checking out if you're dealing with these retirement account interaction issues.

If you're still struggling to reach the IRS for clarification on these retirement contribution rules, I'd recommend trying Claimyr (https://claimyr.com). I spent weeks trying to get through to the IRS about these exact IRA/401k deduction rules last year and kept hitting busy signals or disconnects. Claimyr got me connected to an actual IRS representative in about 15 minutes after I had been trying unsuccessfully for days. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to walk me through the exact phase-out calculations for my situation with both a 401k and IRA, and even sent me the relevant IRS publications that explained it all. It saved me a ton of stress during tax season.

I need to eat my words and apologize for my skepticism about Claimyr. After posting that comment, I decided to try it myself since I've been trying to reach the IRS about my retirement plan questions for weeks. I was absolutely shocked when I got a call back in about 20 minutes connecting me to an actual IRS representative. They answered all my questions about the IRA deduction limits with a 401k and even emailed me Publication 590-A which has the full breakdown of the phase-out calculations. The agent explained that these limits are often misunderstood because most financial websites focus on the contribution limits rather than the deduction limits. For anyone dealing with this specific issue, ask them to explain the "retirement plan at work" rules for IRA deductions - they're super helpful once you actually reach them.

To add to what others have said, I found the official info on this in IRS Publication 590-A. The section you want is called "How Much Can You Deduct" and specifically look for the part about "If You Are Covered by a Retirement Plan at Work." Basically, when you check that box on your tax return that says you're covered by a retirement plan at work (which you are since you contribute to a 401k), those lower MAGI limits kick in. For 2025 those limits are: - Single: phaseout from $77,000-$87,000 - Married filing jointly: phaseout from $123,000-$143,000 - Married filing separately: phaseout from $0-$10,000 (this one is brutal!) Inside the phaseout range, you calculate a partial deduction. Above the range, no deduction. Remember though, you can still MAKE the $7000 contribution - it just won't be deductible. This is where backdoor Roth strategies come in handy.

One thing nobody has mentioned yet is that you might want to consider a Roth IRA instead if you're in the phaseout range for traditional IRA deductions. Since Roth contributions aren't deductible anyway, the fact that you have a 401k doesn't matter for Roth eligibility. The income limits for Roth contributions are much higher: - Single: phaseout from $146,000-$161,000 - Married filing jointly: phaseout from $230,000-$240,000 So if you're in that weird middle zone where you make too much to deduct traditional IRA contributions because of your 401k, but not enough to be excluded from Roth contributions, the Roth is often the better choice.

This thread has been incredibly helpful! I've been dealing with this exact same confusion for months. I contribute to my employer's 401k and was shocked when my tax software reduced my IRA deduction so dramatically. What really clarifies things is understanding that there are THREE different sets of limits at play here: 1. IRA contribution limits ($7,000 for 2025) 2. IRA deduction limits when you have a workplace plan (much lower MAGI thresholds) 3. Roth IRA contribution limits (higher MAGI thresholds) I think the confusion comes from most financial websites and articles only talking about #1, when what most people actually care about is #2 - whether they can get the tax deduction. For anyone else reading this: if you have a 401k at work and make decent money, you're probably better off with a Roth IRA since you likely won't get much (or any) deduction from a traditional IRA anyway. The tax-free growth of the Roth often wins out mathematically in that situation. Thanks everyone for breaking this down so clearly!