Contributed by: AnthonyS, FreeTaxUSA Agent, Tax Pro
If you’re self-employed or have access to a workplace retirement plan and you’re thinking about maxing out your retirement savings, you might wonder: Can I contribute to both a traditional IRA and an SEP-IRA or 401(k), and deduct both on my taxes? The short answer is yes -- you can contribute to both, but there are rules that must be followed.
And while you might also contribute to a Roth IRA, those contributions are never deductible.
Let’s look at how the IRS treats these different retirement accounts and what it means for your deductions.
The IRS allows you to contribute to both a traditional IRA and a workplace plan (like a 401(k) or SEP-IRA). However, your ability to deduct the IRA contribution depends on your income and whether you (or your spouse) are covered by a workplace plan.
This is how it works:
SEP-IRA or 401(k) contribution
- If you're self-employed and contributing to an SEP-IRA, that’s considered an employer contribution and is deductible on Schedule 1 of your tax return. Similarly, if you’re self-employed with no employees, or only your spouse as your employee, and have a solo 401(k), you can make contributions as either employee or employer, or both.
- If you’re an employee of a company that offers an SEP-IRA, your employer may contribute to that plan on your behalf.
- If you’re contributing to a traditional 401(k), your contributions are made pre-tax through payroll and reflected on your W-2.
Traditional IRA deduction
- If neither you nor your spouse is covered by a workplace plan, then your IRA contribution is fully deductible regardless of income.
- If you are covered by a retirement plan, however -- such as the SEP-IRA or 401(k) -- your deduction may be limited based on your Modified Adjusted Gross Income (MAGI).
⚠️Modified Adjusted Gross Income (MAGI) is your AGI plus certain deductions added back in, like student loan interest or IRA contributions. The IRS uses it to decide if you qualify for deductions and credits. You won’t see MAGI on your tax return—it’s a calculated value based on your AGI.
It’s important to note that even if you aren’t contributing to your employer’s retirement plan, you’re still considered ‘covered’, making your deduction limited as well.
Traditional IRA deduction limits
If you’re covered by a workplace plan, here are the 2025 income phaseouts for deducting a traditional IRA. It’s important to check IRA contribution limits and IRA deduction limits annually.
- Single or head of household: Deduction phases out between $79,000 and $89,000 MAGI.
- Married filing jointly (you are covered by a plan): Deduction phases out between $126,000 and $146,000.
- Married filing jointly (you’re not covered, but spouse is): Deduction phases out between $236,000 and $246,000.
See IRS Pub 590-A for the full breakdown.
Example
Jordan reports $80,000 in self-employment income and contributes $10,000 to her SEP-IRA as an employer contribution. She contributes $7,000 to a traditional IRA. Since the SEP-IRA counts as a workplace plan, her ability to deduct her traditional IRA contribution depends on her MAGI.
If her MAGI is within the phaseout range limit, she can take a partial deduction. If it’s above the limit, she won’t get a deduction for the year, and her IRA contribution continues to grow tax-deferred.
Can I take both deductions?
Yes, you can claim both deductions on your tax return in the same year, provided you meet the contribution deadlines and income requirements.
- The SEP-IRA deduction is tied to your business income and not subject to MAGI limits.
- The traditional IRA deduction is subject to MAGI phaseouts if you’re covered by a 401(k) or SEP-IRA plan.
Using FreeTaxUSA
When entering your retirement contributions in FreeTaxUSA, follow the appropriate menu path:
- SEP-IRA contributions are entered by selecting Deductions / Credits > Common Deductions / Credits > SEP Contributions
- Traditional IRA contributions are entered by selecting Deductions / Credits > Common Deductions / Credits > IRA Contributions
- Employee 401(k) contributions will automatically be accounted for when entering your W-2 information.
- The software will calculate your eligibility for a deduction based on your income and filing status. Review this IRS website if you’re self-employed with a retirement plan.
- The software will also alert you of any excess contributions.