The difference between a deductible and a non-deductible IRA contribution comes down to when you pay tax on the money. A deductible Traditional IRA contribution reduces your taxable income the year you make it, so you get the tax break now and pay ordinary income tax on the full amount when you withdraw it in retirement. A non-deductible Traditional IRA contribution goes in with money you have already paid tax on, gives you no current deduction, and comes back out partially tax-free later. Which one you’re allowed to make isn’t a choice; it’s determined by two things: whether you (or your spouse) are covered by a workplace retirement plan, and how much you earn.
Which One You’re Actually Making
If neither you nor your spouse is covered by an employer-sponsored retirement plan like a 401(k), your Traditional IRA contribution is fully deductible no matter what you earn.1Internal Revenue Service. IRA Deduction Limits Income phase-outs simply don’t apply. That’s the simple case.
Once a workplace plan enters the picture, your Modified Adjusted Gross Income (MAGI) decides how much of your contribution is deductible, if any. The rest is non-deductible.
You’re Covered by a Workplace Plan
For 2026, the deduction phases out over these ranges:2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Single or head of household: full deduction at MAGI of $81,000 or less, partial deduction between $81,000 and $91,000, no deduction above $91,000.
- Married filing jointly, with the contributing spouse covered: full deduction at MAGI of $129,000 or less, partial between $129,000 and $149,000, none above $149,000.
- Married filing separately: partial deduction only if MAGI is under $10,000, none at $10,000 or above. This range does not adjust for inflation.
Above the top of your range, every dollar you contribute is non-deductible. You can still make the contribution; you just don’t get a current-year tax break.
Only Your Spouse Is Covered
A more generous rule applies when your spouse has a workplace plan and you don’t. For 2026, the deduction phases out between $242,000 and $252,000 of combined MAGI on a joint return.3Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted Below $242,000, fully deductible. Above $252,000, fully non-deductible.
Calculating a Partial Deduction
Inside a phase-out range, you don’t lose the deduction entirely. Take the upper end of your range, subtract your MAGI, then divide by the width of the range ($10,000 for single filers, $20,000 for a covered joint filer, $10,000 for the non-covered-spouse scenario). Multiply that fraction by the annual contribution limit. Round up to the nearest $10. That’s your deductible amount; anything you contribute beyond it is non-deductible.
A single filer covered by a workplace plan with a 2026 MAGI of $86,000: ($91,000 − $86,000) ÷ $10,000 = 0.50. Half of the $7,500 limit, or $3,750, is deductible. If you contribute the full $7,500, the other $3,750 is non-deductible.
What Counts as MAGI
MAGI for IRA purposes starts with adjusted gross income (line 11 of Form 1040) and adds back the IRA deduction itself, any student loan interest deduction, excluded foreign earned income, excluded savings bond interest, excluded employer-provided adoption benefits, and foreign housing deductions or exclusions.4Internal Revenue Service. Modified Adjusted Gross Income For most people, MAGI is identical to AGI or very close to it.
Why a Non-Deductible Contribution Still Pays Off
Missing out on the upfront deduction is disappointing, but the money still grows tax-deferred inside the IRA. You owe nothing on dividends, interest, or capital gains along the way, which is a real advantage over holding the same investments in a regular taxable brokerage account. And for high earners locked out of Roth IRA contributions, a non-deductible Traditional IRA contribution is the first step in the Backdoor Roth strategy.
Tracking Non-Deductible Contributions on Form 8606
This is where most people quietly wreck their future tax bill. Every year you make a non-deductible contribution, you have to file IRS Form 8606 with your tax return.5Internal Revenue Service. Instructions for Form 8606 The form establishes your “basis” in the IRA: the running total of after-tax dollars you’ve contributed over the years. That basis is money you’ve already been taxed on, and it should not be taxed again when it comes back out.
Form 8606 tracks three things: your non-deductible contributions for the current year, the cumulative basis carried forward from prior years, and the year-end value of all your Traditional, SEP, and SIMPLE IRAs.5Internal Revenue Service. Instructions for Form 8606 Those numbers feed the calculation that decides how much of any future withdrawal is tax-free.
Skipping the Form
Missing a Form 8606 filing carries a $50 penalty. Overstating your non-deductible contributions on the form carries a separate $100 penalty per overstatement.5Internal Revenue Service. Instructions for Form 8606 The real cost is worse than either. Without Form 8606 on file, the IRS has no record that any of your IRA money was contributed after-tax. When you eventually take distributions, the whole amount gets taxed as ordinary income and you pay tax twice on the same dollars.
Records to Keep
The IRS expects you to keep your Form 8606 filings, page one of each year’s Form 1040, Forms 5498 showing contributions and year-end values, and Forms 1099-R for distributions, until every dollar has been distributed from every Traditional and Roth IRA you own.6Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs That’s potentially decades of records. Digital copies stored somewhere durable will save you from reconstructing basis from missing paperwork years from now.
How Withdrawals Get Taxed Once Both Types Are Mixed
Once an IRA holds both deductible (pre-tax) and non-deductible (after-tax) money, you can’t choose which dollars come out first. Every distribution is a proportional mix.7Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
The pro-rata calculation: divide your total non-deductible basis by the combined value of all your Traditional, SEP, and SIMPLE IRAs. That fraction is the tax-free percentage of each withdrawal. If you have $15,000 of basis and $150,000 across all your IRAs, then 10% of any distribution is tax-free and 90% is taxed as ordinary income. Form 8606 runs this calculation for you in the year of the withdrawal.7Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
The rule aggregates every non-Roth IRA you own. You can’t wall off your after-tax money in a separate account and withdraw only from that one to get a clean tax-free distribution. The IRS looks at the combined pool.
The Backdoor Roth: The Main Reason People Choose Non-Deductible
High earners who exceed the Roth IRA income limits often use a non-deductible Traditional IRA contribution as a workaround. For 2026, direct Roth IRA contributions phase out between $153,000 and $168,000 for single filers and between $242,000 and $252,000 for joint filers. Above those numbers, direct Roth contributions aren’t allowed. The Backdoor Roth gets around this by contributing to a Traditional IRA on a non-deductible basis and then converting to a Roth IRA.
On paper, the conversion is nearly tax-free because the contribution was already after-tax. In practice, the same aggregation rule that governs withdrawals can undo the strategy.
The Pro-Rata Trap
You can’t isolate the after-tax dollars for conversion. The IRS combines all your Traditional, SEP, and SIMPLE IRAs into one pool and applies the pro-rata fraction.8Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans If you already have $93,000 in a pre-tax rollover IRA and drop in a $7,500 non-deductible contribution, the IRS sees a $100,500 pool that’s roughly 93% pre-tax. About 93% of the $7,500 conversion becomes taxable, which defeats the point.
Backdoor Roth conversions work cleanly only when your total non-Roth IRA balance is zero or near zero before the conversion. If you have meaningful pre-tax IRA money, you need to handle it first.
The Reverse Rollover Fix
One common workaround: roll your pre-tax IRA balances into your current employer’s 401(k), if the plan accepts incoming rollovers. 401(k) balances aren’t counted in the pro-rata calculation, so moving the pre-tax money out of your IRAs leaves only the non-deductible basis behind. You can then convert what’s left to a Roth IRA with little or no tax.9Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs) Not every 401(k) accepts rollovers from IRAs; check with the plan administrator before you count on it.