When a Traditional IRA Makes More Sense (2025–2026 Edition)

Many clients ask the same question every year:
“Which one should I choose — Traditional IRA or Roth IRA?”

The honest answer is always:
“It depends on your personal situation.”

There is no single “right” choice for everyone. A Traditional IRA can help by lowering today’s taxable income, while a Roth IRA focuses on tax‑free income in the future. A good retirement plan often uses both tools over time, but in this article the focus is on when a Traditional IRA can make more sense, especially under the 2025 and 2026 rules.

Traditional IRA Basics for 2025 and 2026

For 2025, the combined contribution limit to all IRAs (Traditional + Roth) is 7,000 dollars if under age 50 and 8,000 dollars if age 50 or older, due to the 1,000‑dollar catch‑up. For 2026, the IRA limit increases to 7,500 dollars, and with catch‑up the total for those 50 or older becomes 8,600 dollars. These limits apply per person, not per account.​

For the 2025 tax year, Traditional IRA contributions can be made starting January 1, 2025, and must be completed by April 15, 2026, the due date of the federal income tax return for that year (not including extensions), provided the contribution is properly designated as a 2025 contribution with the custodian.

Whether those Traditional IRA contributions are deductible depends on income, filing status, and whether you or your spouse is covered by a retirement plan at work, as described later.

Story 1 – Reducing Taxable Income in a High‑Tax Year

David, a self‑employed consultant in his early 50s, had a strong year in 2024 and expects similar income in 2025. His income pushed him into a higher federal tax bracket, and he wanted to avoid an unnecessary tax spike.

Because David is not covered by any employer plan, his eligibility for a Traditional IRA deduction for 2025 is not limited by income; as long as he has earned compensation, he can generally deduct his full IRA contribution up to the annual limit. He decides to make a full Traditional IRA contribution of 8,000 dollars for 2025 (including the 1,000‑dollar catch‑up allowed after age 50).​

That 8,000‑dollar contribution directly reduces his taxable income by the same amount, functioning like an above‑the‑line deduction. Because he is in a relatively high marginal bracket, this single IRA move saves him well over 1,000 dollars in federal income tax for the year. For David, the Traditional IRA is a tool to smooth out an unusually high‑income period and convert part of that income into long‑term retirement savings rather than tax.

Story 2 – Lowering Income for Better Health Coverage

Mina and James are a married couple in their early 60s who buy health insurance through the Affordable Care Act (ACA) marketplace. Their premium tax credit is based on household modified adjusted gross income (MAGI), and being only slightly above certain thresholds can materially reduce their subsidy.

When projecting their 2024 income, their MAGI is about 3,500 dollars higher than the level that would qualify them for more generous premium tax credits. Rather than accepting higher net premiums, they decide to use Traditional IRAs strategically. Each spouse contributes 3,500 dollars to a Traditional IRA for 2024, reducing their combined MAGI by 7,000 dollars.

Because both contributions are deductible under the applicable 2024 phaseout rules, the lower MAGI places them back into a more favorable ACA subsidy range, saving them hundreds of dollars per month on health insurance. In this scenario, the Traditional IRA serves not only as a retirement savings vehicle but also as an effective tool for managing income for ACA purposes.

It is important to note, however, that under current law the enhanced ACA premium tax credits are scheduled to expire at the end of 2025 unless Congress acts to extend them. These expanded subsidies were first enacted in 2021 and later extended through 2025. Without further legislative action, they would no longer apply beginning in 2026, which could significantly change the impact of MAGI-management strategies in future years.

Story 3 – Helping a Mid‑Career Employee Without a 401(k)

Emma, age 35, works for a small employer that does not offer a 401(k) or any other retirement plan. She wants to start building retirement savings and likes the idea of a tax break today.

For 2025, she can contribute up to 7,000 dollars to an IRA because she is under age 50. Since she is not covered by a workplace plan and her income is moderate, her Traditional IRA contribution is fully deductible, reducing her taxable income dollar‑for‑dollar up to the limit. She contributes 7,000 dollars, and at tax time, the deduction increases her refund.​

Encouraged, Emma decides to use part of that refund to help fund the following year’s IRA contribution. For workers like her who lack employer-sponsored retirement benefits, the Traditional IRA effectively functions as a personal 401(k): flexible, relatively simple, and immediately tax-efficient.

How Income Limits Affect Traditional IRA Deductions in 2025

Income limits do not prevent most taxpayers from contributing to a Traditional IRA but do limit whether the contribution is deductible. For 2025, the critical factors are whether you (or your spouse) are covered by a workplace plan and your MAGI.​

If you are covered by a retirement plan at work in 2025:

• Single or head of household
  Full deduction if MAGI is 79,000 dollars or less, partial deduction between 79,000 and 89,000 dollars, and no deduction at 89,000 dollars or more.​
• Married filing jointly, covered spouse
  Full deduction if MAGI is 126,000 dollars or less, partial deduction between 126,000 and 146,000 dollars, and no deduction at 146,000 dollars or more.​
• Married filing separately (lived with spouse)
  Deduction phases out between 0 and 10,000 dollars of MAGI; at 10,000 dollars or more, there is no deduction.​

If you are not covered but your spouse is (MFJ, 2025):

• Married filing jointly – contributor not covered, spouse is covered
  Full deduction if MAGI is 236,000 dollars or less, partial deduction between 236,000 and 246,000 dollars, and no deduction at 246,000 dollars or more.​
• Married filing separately with a covered spouse
  Deduction phases out between 0 and 10,000 dollars of MAGI, with no deduction at 10,000 dollars or more.​

If neither spouse is covered by a workplace plan in 2025, Traditional IRA contributions are fully deductible up to the annual dollar limit, as long as there is enough taxable compensation.​

How Income Limits Affect Traditional IRA Deductions in 2026

In 2026, the structure is the same, but the MAGI thresholds are slightly higher due to cost‑of‑living adjustments.​

If you are covered by a retirement plan at work in 2026:

• Single or head of household
  Full deduction if MAGI is 81,000 dollars or less, partial deduction between 81,000 and 91,000 dollars, and no deduction at 91,000 dollars or more.​
• Married filing jointly, covered spouse
  Full deduction if MAGI is 129,000 dollars or less, partial deduction between 129,000 and 149,000 dollars, and no deduction at 149,000 dollars or more.​
• Married filing separately (lived with spouse)
  Deduction is partial below 10,000 dollars of MAGI and not allowed at 10,000 dollars or more.​

If you are not covered but your spouse is (MFJ, 2026):

• Married filing jointly – contributor not covered, spouse is covered
  Full deduction if MAGI is 242,000 dollars or less, partial deduction between 242,000 and 252,000 dollars, and no deduction at 252,000 dollars or more.​
• Married filing separately with a covered spouse
  Deduction phases out between 0 and 10,000 dollars of MAGI, with no deduction at 10,000 dollars or more.​

If neither spouse is covered by a workplace plan in 2026, Traditional IRA contributions are again fully deductible up to the 7,500‑ or 8,600‑dollar limit, as long as there is sufficient taxable compensation.​

Why a Traditional IRA Might Be Better for You

Looking at the stories and the rules together, a Traditional IRA tends to be especially attractive in situations like these:

• You expect to be in a lower tax bracket in retirement, so a deduction now and taxable withdrawals later may produce a net tax savings.​
• You need to reduce AGI or MAGI to qualify for credits or benefits, such as the ACA premium tax credit.​
• You do not have access to an employer plan but still want tax‑advantaged retirement savings.​
• You are experiencing a particularly high‑income year and want to smooth your tax burden over time.​

The Bottom Line

A Traditional IRA is not inherently “better” or “worse” than a Roth IRA; it is simply better suited to certain income levels, benefit strategies, and timing of taxes. For clients like David, Mina and James, or Emma, a Traditional IRA is a flexible, powerful lever to reduce taxable income, manage MAGI for benefits, and build long‑term retirement savings under the 2025 and 2026 rules.