If you and/or your spouse have earned income in 2026, you both may be able to contribute up to $7,500 in regular contributions and (if you're over 50) up to $1,100 in catch-up contributions to a Traditional or Roth IRA.
And if you haven’t made an IRA contribution for tax-year 2025, you may also be able to contribute up to $7,000 (plus an extra $1,000 catchup) for 2025 if you get it in by the April 15, 2026 tax-filing date.
However, your ability to contribute to a Roth IRA or make tax-deductible contributions to a Traditional IRA may be limited by your earned income, Modified Gross Adjusted Income (MAGI) and other factors.
How earned income and MAGI impact IRA contributions
Understanding how these two factors determine IRA contribution eligiblity can be confusing. So, let's try to make it simple.
- How much you can contribute each year cannot exceed the earned income you receive that year. Earned income includes any income earned from a full or part-time job or from freelance work or income earned from a business. Unearned income from Social Security checks, retirement plan and IRA distributions and rental and investment income generally doesn't count.
- Whether you can contribute to a Roth IRA or deduct Traditional IRA contributions is determined, in part, by your MAGI for the year. MAGI encompasses both earned and unearned income, adjusted for any tax deductions you're able to take.
Traditional IRAs
If neither you or your spouse are working for an employer but have earned income from another source you generally are able to deduct contributions to a Traditional IRA.
Complications arise if either one of you are covered by a retirement plan at work.
This notion of “coverage” can be confusing. According to the IRS, you’re covered if your employer has a:
- Defined contribution plan (profit-sharing, 401(k), stock bonus or money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year;
- IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year; or
- Defined benefit plan (pension plan that pays a retirement benefit spelled out in the plan) and you are eligible to participate for the plan year ending with or within the tax year.
In other words, if you and/or your spouse make your own elective contributions to an employer retirement plan or your employer makes contributions to a retirement account established on your behalf, you’re considered “covered.”
In these situations, your ability to deduct contributions to a Traditional IRA is determined by your MAGI and your tax-filing status.
If you don’t contribute to an employer retirement plan at work and/or don't receive contributions to a retirement account from your employer, you may not be subject to the coverage limitation. Check with your benefits manager just to be sure.
You can make non-deductible contributions to a Traditional IRA. But, if you're eligible, you may benefit more by contributing to a Roth IRA instead.
Roth IRA contributions
Like Traditional IRAs, you must have earned income to contribute to a Roth IRA.
While Roth IRA contributions are made on an after-tax basis, earnings grow tax-free and you’ll never have to pay taxes or penalties on withdrawals once you’ve reached age 59½ and held the account for at least five years. And, unlike Traditional IRAs, you’ll never have to take annual Required Minimum Distributions when you reach age 73.
However, your eligibility to make full or partial Roth contributions may be limited by your MAGI.
The pre-tax and Roth 401(k) alternative
If your MAGI precludes you from being able to deduct Traditional IRA contributions or contribute to a Roth IRA, you may want to take greater advantage of your employer’s 401(k) plan.
- If you want to reduce your current taxable income, consider increasing your pre-tax contributions.
- If you want to avoid paying taxes on future withdrawals, consider making after-tax Roth 401(k) contributions.
In 2026, you’ll be able to contribute up to $24,500 in either pre-tax or after-tax Roth contributions (or possibly split this amount between them). If you’re over age 50, you’ll be able to contribute up to $8,000 more in catch-up contributions ($11,250 if you’re age 60, 61, 62 or 63).
You’ll benefit even more if your employer makes matching contributions. And when you leave the company, you can roll over your pre-tax account to a Traditional IRA and your Roth 401(k) to a Roth IRA.
If you have any questions about IRA eligibility or need help determining whether tax-deductible or after-tax retirement contributions make sense, consider speaking with a tax professional or financial advisor.
This material has been provided for general informational purposes only and does not constitute tax advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax professional on any tax-related issues.
This article was authored by David Jaeger and Jeffrey Briskin. David is a financial advisor with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. David can be reached at 508.598.1082 or djaeger@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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