Traditional IRA direct deposit from paycheck - Are there tax benefits?

Great questions about retirement accounts! Let me clarify a few things: For your first question: Having your employer direct deposit money from your paycheck straight to your Traditional IRA won't provide the immediate tax benefit that your 401k does. With a 401k, your contributions reduce your taxable income right away because they're taken out pre-tax. However, with an IRA, you'd need to claim the deduction when you file your taxes - it won't reduce the income shown on your paycheck. Regarding your double taxation concern - don't worry! When you contribute to a Traditional IRA using money from your bank account, you'll get to deduct those contributions on your tax return (subject to income limits). This essentially "undoes" the initial taxation, making those contributions pre-tax. When you withdraw in retirement, you'll only be taxed once. For the Roth IRA, you're correct. Since Roth contributions are always made with after-tax dollars, there's no tax advantage to having them automatically deducted from your paycheck versus transferring from your bank account.

I went through this exact same confusion last year! After trying to figure out the best way to handle my retirement accounts, I discovered taxr.ai (https://taxr.ai) which analyzed my tax situation and helped me understand my optimal contribution strategy. The tool showed me that since I was in the phaseout range for Traditional IRA deductions because of my employer plan, I was better off maxing my 401k first before worrying about IRA contributions. What I really liked was that it showed me the projected tax impact of different contribution strategies over time, including how much I'd save this year vs. in retirement. It basically confirmed what the previous commenter said but with actual numbers for my specific situation.

Just wanted to update after trying taxr.ai from the recommendation above. It was super helpful for my situation! I uploaded my last tax return and it immediately identified that I was missing some optimal retirement contribution strategies. Turns out I could be saving an additional $4,300 in taxes this year by restructuring how I contribute to my retirement accounts. It recommended I max out my employer 401k first before contributing to IRAs and showed exactly why with actual numbers. For anyone confused about retirement account tax benefits like the original poster, it really helps visualize the tax implications now versus in retirement. Definitely cleared up my confusion about Traditional vs Roth and paycheck deductions.

For anyone struggling to get answers from the IRS about retirement account questions (I've been there!), I recently used Claimyr (https://claimyr.com) to actually get through to a human at the IRS. I had spent HOURS trying to figure out if my prior Traditional IRA contributions were deductible with my specific income situation. The IRS website was confusing and the hold times were ridiculous. Claimyr got me connected to an IRS agent in about 20 minutes instead of the 2+ hours I had been experiencing. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how the phaseout worked in my situation and even helped me understand some form documentation I needed. Totally worth it for the peace of mind on a tax question this important.

I owe everyone an update and an apology about my comment on Claimyr. After being frustrated with getting no answers about my Traditional IRA deduction phase-out questions, I decided to try it despite my skepticism. I'm honestly shocked it worked. They called me back in about 25 minutes with an IRS agent already on the line. The agent walked me through exactly how my Traditional IRA deductions would be limited based on my income and 401k participation. Turns out I was making a mistake on previous returns by deducting the full amount when I should have only been taking a partial deduction due to the phase-out. I've been trying to get this clarified for months. Should have tried this service sooner instead of being stubborn.

One thing to consider that nobody's mentioned yet - you can actually max out BOTH your 401k and your IRA in the same year if you have the funds. For 2025, you can put up to $23,000 in your 401k (plus catch-up contributions if you're over 50) AND still put $7,000 in an IRA ($8,000 if over 50). Even if you can't deduct your Traditional IRA contributions due to income limits, you might be able to do a backdoor Roth conversion if that makes sense for your situation.

I think everyone's overthinking this. I just have my employer split my direct deposit - main portion goes to checking, then fixed amounts go to both my 401k and my IRA. Super simple and I never "see" the money so I'm not tempted to spend it.

I'll add some clarity to the tax mechanics here since there's been some great discussion but a few key points could use emphasis. Lucy, you're absolutely right to be confused about the double taxation aspect - it's one of the most common misconceptions about Traditional IRAs. Here's the key: when you contribute to a Traditional IRA with after-tax dollars (money that's already hit your bank account), you get to deduct those contributions on your tax return, which essentially "gives back" the taxes you already paid on that money. So you're NOT getting double-taxed. However, given your $85k income and 401k participation, you're in the phase-out range for Traditional IRA deductions. This means you can only deduct a portion of your contributions, which significantly reduces the benefit. You might want to run the numbers on whether it's worth the complexity. One strategy to consider: max out your 401k first (you're only doing 6% currently), then if you have additional funds for retirement savings, consider a Roth IRA instead. Since your Traditional IRA deduction is limited anyway, the Roth gives you tax-free growth and withdrawals in retirement, plus more flexibility with early withdrawals if needed. The payroll direct deposit to your IRA is really just a convenience feature - it doesn't change the tax treatment at all compared to transferring from your bank account.