Will I essentially be taxed twice when withdrawing from my Traditional IRA?

Wait, so if I'm already contributing to my company's 401k, can I still deduct my Traditional IRA contributions? Or is there some income limit? I'm confused because I thought there were restrictions.

If you have a 401k at work, you can still deduct Traditional IRA contributions, but there are income limits. For 2025, if you're single and your Modified AGI is under $76,000, you can take a full deduction. Between $76,000-$86,000, you get a partial deduction. Above $86,000, no deduction. For married filing jointly, the full deduction phases out between $123,000-$143,000 if you have a workplace plan. If your spouse has a plan but you don't, the limits are higher - between $206,000-$216,000.

Can taxr.ai help figure out if I can still fix this for previous years? I've been contributing to a Traditional IRA for 3 years and never deducted it because I didn't know I could.

Does this work for Roth IRA contributions too? Or just traditional? And does it connect directly with major tax filing software or do I have to manually enter stuff?

It absolutely can help with prior years! It analyzes your past returns and tells you if you can file amendments to claim missed deductions. There's a section specifically for retirement contributions that got missed. For Roth IRAs, it's different since those aren't tax-deductible but grow tax-free. The tool helps track Roth contribution limits and eligibility based on income. And yes, it integrates with major tax software like TurboTax and H&R Block, but you can also just use the insights manually if you prefer.

How does this actually work? The IRS phone lines are impossible to get through. I've tried calling multiple times about my retirement account questions.

Sounds like BS honestly. I've tried EVERYTHING to get through to the IRS and nothing works. How could this possibly work when the IRS phone systems are completely overloaded?

It uses a technology that navigates the IRS phone system for you. Basically, it dials repeatedly using multiple lines until it gets through, then calls you when it has an agent on the line. You don't have to sit on hold for hours. I was totally shocked when it worked too. The longest part was just waiting for them to call me back which took about 40 minutes. But that's way better than the 3+ hours I spent trying to get through myself. It's especially useful for complicated questions about retirement accounts where you really need an official answer.

Isnt there some rule about pro-rata calculations if you already have other traditional IRA money? I heard this can make the backdoor Roth strategy not work as well.

Yes, that's an important point. The pro-rata rule means if you have existing pre-tax money in any Traditional IRA (including SEP or SIMPLE IRAs), you can't just convert your new non-deductible contributions tax-free. The IRS treats all your IRA money as one pot, so if you have $50,000 in pre-tax Traditional IRA money and add $6,000 in non-deductible contributions, only about 10.7% of any conversion would be tax-free. One workaround is rolling existing Traditional IRA money into a 401(k) if your plan allows it, which removes it from the pro-rata calculation.

I use this form every year! It's really important for tracking your "basis" in traditional IRAs. The IRS doesn't automatically know which money was taxed already, so this form creates the record. Without it, you definitely could end up paying tax twice.

This is exactly the clarification I needed! I've been contributing to my Traditional IRA for about 6 months now and had no idea about Form 8606. Since I make too much to deduct my contributions (I have a 401k at work and my income is above the phase-out limits), it sounds like I should be filing this form to track my basis. Quick question - do I need to file an amended return for the contributions I've already made this year, or can I just start using Form 8606 with my current tax return? And is there a penalty if I haven't been tracking this properly from the beginning?

@Zara Ahmed You can start using Form 8606 with your current tax return - no need to amend anything for contributions made in the same tax year. The form will capture all your non-deductible contributions for the year, including the ones you already made. As for penalties, there s'technically a $50 penalty for not filing Form 8606 when required, but the IRS often waives it if you have reasonable cause like (not knowing about the requirement .)The bigger risk is losing track of your basis and potentially paying taxes twice on your contributions when you withdraw in retirement. I d'recommend filing Form 8606 going forward and keeping good records. If you made non-deductible contributions in previous years and didn t'file the form, you might want to consider filing amended returns to establish that paper trail, especially if the amounts were significant.

This is really helpful! I'm in a similar situation to Diego and wasn't sure about the deduction eligibility. Just to make sure I understand - if I'm single, make $70,000 a year, and have a 401k at work, I can still fully deduct my Traditional IRA contributions since I'm under that $76,000 threshold you mentioned earlier? And then I wouldn't need to worry about Form 8606 at all since the contributions would be fully deductible? Also, is there a limit to how much I can contribute and deduct for 2025? I've been putting in $500/month but want to make sure I'm not going over any limits.

@Keisha Taylor That s'exactly right! With your income of $70,000 and being single, you re'well under the $76,000 threshold, so you can fully deduct your Traditional IRA contributions even though you have a 401k at work. This means you won t'need Form 8606 since your contributions will be fully deductible. For 2025, the contribution limit for Traditional IRAs is $7,000 if you re'under 50 or ($8,000 if you re'50 or older with the catch-up contribution .)At $500/month, you d'contribute $6,000 for the year, which is well within the limit. Just make sure to claim that deduction on your tax return - it should save you around $1,320-$1,680 in taxes depending on your tax bracket 22% (or 24% for your income level .)That s'a nice chunk of change to get back!