The IRA Deduction Phase-Out in 2026: Where Extra Pay Is Taxed at 1.75 Times Your Bracket

Most people who have a 401(k) know that the deduction for a traditional IRA shrinks as their income rises. Fewer have worked out what the shrinking costs. The deduction does not fade out gradually in some vague way: it falls by a fixed number of cents for every extra dollar of income, and every dollar of deduction lost is a dollar of income taxed. So inside the phase-out range each extra dollar of pay is taxed as more than a dollar. In 2026 a single filer covered by a plan at work has that range from $81,000 to $91,000 of modified adjusted gross income, with a $7,500 IRA limit (IRS Notice 2025-67), and this guide works out, with the same engine as the IRA limit calculator and the 2026 tax brackets, what that does to the tax on the next $1,000.

How the deduction shrinks

The rule is in 26 U.S.C. 219(g). If you or your spouse is an “active participant” in a workplace plan, the dollar limit on your deduction (the $7,500, or $8,600 at 50 or older) is reduced by the same share as your income is of the way through a range: the limit times your income over the start of the range, divided by the width of the range ($10,000, or $20,000 for a joint return when you are the one who is covered). The reduction is rounded down to a multiple of $10, and the limit is not cut below $200 until it is cut to zero. Because both the limit and the width are fixed, the deduction lost per extra dollar of income is simply the limit divided by the width:

The ranges are Notice 2025-67's: $81,000 to $91,000 for single filers and heads of household who are covered, $129,000 to $149,000 for a joint return where the contributor is covered, and $242,000 to $252,000 for a contributor who is not covered when the spouse is. The IRS worksheets in Publication 590-A are written for 2025, when the limit was $7,000, so they print 70% (and 35% for a covered joint filer) as the multiplier for the same ratio; with the 2026 limit it is 75% and 37.5%, which is the figure in the table. The last column is the rate on an extra dollar of income for someone in the 22% bracket: 22% times 1 plus the deduction lost, as long as the extra dollar and the lost deduction fall in the same bracket.

A single filer, pay by pay

Take someone whose only income is pay, who takes the standard deduction ($16,100 for 2026), covered by a plan at work, and who puts $7,500 in a traditional IRA. For each pay level, the deduction left, the federal tax the IRA contribution saves, and the tax on the next $1,000:

The row for $81,000 shows the effect at its start: the contribution still saves $1,650, but the next $1,000 of pay costs $385 rather than $220. By $91,000 the deduction is gone and the contribution saves nothing in tax; it can still be made, as a nondeductible contribution (Form 8606), but its only benefit is tax-deferred growth. Outside the range the tax on the next $1,000 is the ordinary bracket rate again. If you contribute less than your limit, the deduction is capped by what you put in, so the effect starts later and ends sooner.

Married filers: three ranges, three costs

On a joint return the rules depend on whose deduction is being phased out. If the spouse making the contribution is covered by a plan at work, the range is $129,000 to $149,000, which is twice as wide, so each person loses 37.5% of a dollar of deduction per extra dollar of income, not 75%. If both spouses are covered and both contribute, two deductions fade out in the same range and the loss doubles to 75%. A spouse who is not covered but whose partner is gets their full deduction until a joint income of $242,000 and loses 75% per extra dollar from there to $252,000. Real rates on the next $1,000 of pay for a couple who each put $7,500 in a traditional IRA, in the 2026 brackets with the $32,200 standard deduction:

Read each row against the range: below $129,000 neither case pays more than the bracket rate; inside it the cost is the bracket rate times 1.375 (one covered) or 1.75 (both). With these deductions the couple moves from the 12% bracket to the 22% bracket inside the range, at about $140,000 of pay when both are covered and about $143,000 when one is, so the cost steps up there (a row on the edge can blend the two). In the uncovered-spouse range the rates are 38.5% while taxable income is in the 22% bracket, and 42% once it reaches the 24% bracket (a joint taxable income of $211,400). None of the combined rates reaches 50%, so more pay always leaves more money after tax.

What it means for a pre-tax 401(k) or HSA contribution

The same arithmetic runs the other way. Anything that lowers modified AGI pulls a covered filer back through the range, and each dollar it removes brings back 75 cents of IRA deduction. A single filer with $91,000 of pay who puts an extra $10,000 into a traditional 401(k) has $81,000 of income: the whole $7,500 IRA deduction comes back, so federal tax falls by $3,850, which is 22% of the $10,000 plus 22% of the $7,500, or 38.5% of the deferral. Part of the way: at $88,000, an extra $5,000 deferral saves $1,925, also 38.5%. Below the range the same $5,000 saves $1,100 (22%), because the IRA deduction is already whole. The traditional 401(k) deferral, a health savings account contribution through payroll and other deductions that reduce adjusted gross income work the same way; a Roth 401(k) deferral does not, because it does not lower income. This is how the tax responds, not a recommendation: whether to defer depends on whether you need the money now.

The Roth IRA has a different kind of cost

A Roth IRA contribution is not deducted, so there is no deduction for income to take away; the income test limits the amount you may put in instead. In 2026 the limit falls from $7,500 to zero across $153,000 to $168,000 for a single filer, which removes 50 cents of Roth room per extra dollar, and across $242,000 to $252,000 for a joint return, which removes 75 cents per dollar (26 U.S.C. 408A(c)(3)). That is lost room, not tax: nothing is added to your bill, but a contribution you could have made becomes impossible. The two ranges do not overlap for a single filer, so someone who is past the top of the deduction range ($91,000) and below the Roth range ($153,000) can contribute the full amount to a Roth IRA, with no deduction in either case.

What the figures leave out

• The model is federal income tax on pay alone, with the standard deduction and no credits. State income tax adds to every rate above, and credits and deductions that depend on adjusted gross income (the saver's credit, education credits, student loan interest) respond to the same income.
• Modified AGI is adjusted gross income worked out without the IRA deduction, plus the student loan interest deduction, foreign earned income exclusions and a few others (Publication 590-A, Worksheet 1-1). If you receive Social Security and are covered by a plan, the IRS has you work out the deduction and the taxable benefits together (Appendix B), which this guide does not.
• “Covered” means a plan at work that is funded for the year, even with no vested balance, or a pension you are eligible for; being covered only by Social Security is not coverage. Check box 13 of your Form W-2.
• The amounts are 2026 ones and move every year. The IRS publishes the next year's ranges in the autumn; the width of each range is fixed by statute, so only the start moves, and the limit ($7,500 now) changes in steps of $500.

To see your own numbers, enter your pay, filing status and plan coverage in the Roth & Traditional IRA Limit Calculator; it shows the deductible part, the nondeductible part and the Roth limit for you and a spouse. This is general information about how the tax rules work, not tax advice for your situation.