For the 2025 U.S. federal tax year, a single taxpayer who actively participates in an employer's retirement plan has modified adjusted gross income (MAGI) of $85,000. Under IRC Section 219(g), how does this affect the taxpayer's traditional IRA contribution?
- Because the taxpayer's MAGI falls within the $79,000-$89,000 phase-out range for a single active participant, the deductible amount is reduced on a sliding scale rather than eliminated entirely, and any contribution beyond the reduced deductible amount can still be made as a nondeductible contribution
- Because MAGI exceeds $79,000, no deduction is allowed at all, and the taxpayer cannot make any traditional IRA contribution for the year
- Because the taxpayer is an active participant, the deduction is disallowed only if MAGI exceeds $146,000, so the full contribution remains deductible at $85,000
- The active-participant phase-out applies only to Roth IRA contributions, so the traditional IRA deduction is unaffected by the plan's coverage of the taxpayer
Why A? And why not the others?
Correct answer: A. Because the taxpayer's MAGI falls within the $79,000-$89,000 phase-out range for a single active participant, the deductible amount is reduced on a sliding scale rather than eliminated entirely, and any contribution beyond the reduced deductible amount can still be made as a nondeductible contribution
Under IRC Section 219(g), a single taxpayer who is an active participant in an employer-sponsored retirement plan has a 2025 traditional IRA deduction phase-out range of $79,000 to $89,000 of modified adjusted gross income. At $85,000, MAGI falls inside that range, so the deductible amount is reduced on a sliding scale rather than cut to zero, and any contribution above the reduced deductible limit can still be made as a nondeductible contribution reported on Form 8606. The option describing a full disallowance at the $79,000 figure is wrong because that figure is only where the phase-out begins, not where the deduction reaches zero; the deduction is not fully eliminated until MAGI reaches $89,000. The option citing $146,000 as the relevant ceiling is wrong because that figure applies to a spouse who is not an active participant but is married to one who is, filing jointly, not to a single active participant. The option limiting the phase-out to Roth contributions is wrong because Section 219(g) governs the deductibility of traditional IRA contributions specifically; Roth IRA eligibility phases out under an entirely separate income limit that does not depend on active-participant status at all.
Source: IRS Notice 2024-80 (2025 cost-of-living adjustments for retirement plans); IRS, 'IRA Deduction Limits' (irs.gov/retirement-plans/ira-deduction-limits)