How to Use the IRA Decision Tree
Step 1: Earn Compensation. Salary, self-employment, commissions, or a spouse’s earned income all count. Without it, no IRA contributions.
Step 2: Roth Income Testing. Under the modified adjusted gross income (MAGI) limit? You can contribute directly. On this? Consider the backdoor Roth path – a non-deductible traditional contribution that you can convert to a Roth.
Step 3: Workplace Plan Coverage. A 401(k), 403(b), SEP IRA, SIMPLE IRA, or pension from any employer puts you in the “covered” bucket – even if you don’t participate. Availability matters, not participation.
Step 4: Traditional Cut Testing. If you or your spouse are covered and income is above the phase-out, the Traditional IRA deduction disappears. The Roth becomes the clear winner because otherwise you will pay taxes along the way and lose the tax-free withdrawals.
Step 5: Discipline Check. When the traditional IRA deduction is on the table, the math supports it — but only if you actually invest the tax refund.
According to financial planner Larry Russell, “For savers who reinvest tax savings, traditional wins. For savers who spend refunds, Roth wins by imposing discipline.”
What to keep in mind: 2026 phase-out moved. Single covered filers lose the earlier $2,000 deduction through 2025 (the limit now starts at $81K vs. $79K), and the Roth MAGI cap for married filing jointly jumps to $242K-$252K. If you were close to a limit last year, run the tree again before making the 2026 contribution.
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