IRA and Roth Contribution Options Based on Your Income Level

By Tanner Doudna

Similar to saving for college, there are tax benefits to setting aside savings in accounts specifically designated for retirement. While college savings accounts have a somewhat small list of approved expenses, funds in retirement accounts can be used for anything! There are a few restrictions to accessing the funds in retirement accounts before you turn 59½, but a big positive is tax-deferred growth (in pre-tax accounts) and tax-free growth (in Roth accounts) while the money is in the account. Also, no tax consequences for dividends, interest, and capital gains, which helps you have more money when you need it in retirement. Your options for contributing to a Traditional IRA or a Roth vary based on your income and tax filing status. Keep in mind: you must have earned income to contribute.

Traditional IRA

• Lower Income: For those with income low enough, you could qualify for the Saver’s Credit. You get the benefit of a dollar-for-dollar reduction of your taxable income based on how much you contribute, and get up to a $1,000 tax credit ($2,000 for married couples). For 2024, adjusted gross income had to be below $34,500 ($46,000 for married couples) to get the maximum credit. You can use this tool from the IRS to determine if you’d be eligible.
• Income Below the Phaseout: For those with MAGI (Modified Adjusted Gross Income) below $79,000 (for 2025) or $126,000 for married couples, you can contribute to a Traditional IRA and take a dollar-for-dollar reduction of your taxable income based on how much you contribute. If your MAGI is slightly above those figures, you may be able to take a partial
• Income Above the Phaseout: For those with MAGI above $89,000 (for 2025) or $146,000 for married couples, you typically cannot deduct your IRA contribution, but there are some exceptions. Just because you can’t deduct your contribution, doesn’t mean you can’t contribute. You can make a non-deductible The benefit is no taxes on dividends, interest, and capital gains, plus you won’t pay taxes again on your contribution. This strategy requires very diligent record keeping and can have some negatives. You can read more about it here.
• Other scenarios: There are also scenarios where you have a high income and can still make a deductible IRA contribution for you and/or your spouse. The most common is if you (or both of you), are not covered by a retirement plan at work. You can see the IRS’ 2024 chart for those not covered by a retirement plan at work here if you are interested.

Roth IRA

• Income Below the Phaseout: For those with MAGI below $150,000 (for 2025) or $236,000 for married couples, you can contribute to a Roth IRA up to the maximum. There is no tax deduction, but the money grows tax-free. If your MAGI is slightly above those figures, you may be able to make a partial
• Income Above the Phaseout: Unlike the Traditional IRA, there are no special exemptions for Roths related to a covered retirement plan at work. It’s really either contributing through the “front-door” (as discussed above), or through the “back-door”. There are some nuances involved, which you can read about here, but there is a perfectly legal way to contribute to a Roth IRA if your income is above the phaseout.
  • Two of the most common mistakes we see related to Back-Door Roth Contributions are:
    • 1) Not understanding the Pro Rata Rule
    • 2) Not reporting a Back-Door Roth contribution correctly on taxes. If done correctly and you are not subject to the Pro Rata Rule, it should not be a taxable event.

Consistently contributing to retirement accounts can be very powerful over the course of your life due to compounding interest and can pave the way to a financially successful retirement. But, similar to most things finance and tax-related, there are a lot of moving parts. Feel free to reach out to us if you have questions about your specific situation!