Is Your Traditional IRA Deductible With a Solo 401(k) or SEP? The 2026 Active Participant Phase-Out for Freelancers

Published: November 9, 2026 · Reading time: 9 min

TL;DR: You can always contribute to a traditional IRA, but whether you can deduct it depends on whether a plan covers you and on your modified AGI. A freelancer with a SEP-IRA, SIMPLE IRA or Solo 401(k) is generally treated as covered, and for 2026 a covered single filer gets a full deduction at $81,000 of modified AGI or less, a partial one up to $91,000 and none above (Notice 2025-67). The IRA limit is $7,500 ($8,600 at 50 or older). If no plan covers you, there is no income limit at all. In the worked example, a single freelancer with $98,000 of net profit saves $1,320.00 with a fully deductible IRA, and a $7,500 Solo 401(k) deferral pulls her modified AGI from $91,076.52 down to $83,576.52, which keeps a $5,570 IRA deduction alive once she is covered, worth another $892.84. There are 52 days left in 2026, and the IRA itself can be funded until April 15, 2027, so the choice of door is not closed on December 31. Confirm your facts with a CPA or EA.

Most freelancers file a traditional IRA and a business retirement plan in the same mental drawer: both are deductible, so do both. The tax code disagrees. Once a plan covers you, the IRA deduction acquires an income test, and for a Schedule C filer netting around $90,000 that test is the whole story.

This guide covers who counts as covered, the 2026 phase-out ranges, the deduction formula, and a worked example with every figure recomputed. Related guides: traditional vs. Roth IRAs, the Roth income limit, SEP-IRA vs. Solo 401(k), and the year-end tax moves checklist.

Two Separate Questions: Can You Contribute, and Can You Deduct?

Publication 590-A keeps these apart: "Limits on the amount you can deduct don't affect the amount that can be contributed." A high earner can always put money in a traditional IRA. The only question is whether the contribution reduces this year's tax.

If no plan covers you (and your spouse's plan doesn't either), you can deduct up to the lesser of the IRA limit or your compensation, whatever your income. For 2026 the limit is $7,500, or $8,600 if you are 50 or older, because Notice 2025-67 raised the base from $7,000 to $7,500 and the catch-up from $1,000 to $1,100.

If a plan does cover you, the deduction phases out on modified AGI. That is the rest of this guide.

Are You Covered? What Counts for a Freelancer

Section 219(g)(5) of the Internal Revenue Code defines an active participant by listing plans. The two that matter here are a qualified plan under section 401(a) with an exempt trust, which is where a Solo 401(k) sits, and a simplified employee pension, which is a SEP. SIMPLE IRAs are listed as well. The statute adds that the test applies "without regard to whether or not such individual's rights under a plan, trust, or contract are nonforfeitable," so being unvested doesn't get you out.

The IRS describes it for self-employed people in the Form 1040 instructions: "You are also covered by a plan if you were self-employed and had a SEP, SIMPLE, or qualified retirement plan." That sentence says "had," not "contributed to."

Publication 590-A is more specific for defined contribution plans, which include profit-sharing and 401(k) plans: "Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year." The publication then adds a special timing rule for discretionary plans in which nothing was allocated by the end of the plan year.

What that means in practice:

• If you put money in a SEP, SIMPLE or Solo 401(k) for 2026, you are covered. Treat that as settled.
• If you have a plan but contribute nothing for 2026, the two IRS sources are worded differently, and the discretionary-plan timing rule adds a wrinkle. Don't build a deduction on that gap without a CPA or EA signing off.
• A day-job plan counts. Box 13 of your W-2 has a retirement plan checkbox.
• A spouse's plan counts against you too, at the higher joint range in the table below.

The 2026 Phase-Out Ranges

Notice 2025-67 sets the 2026 ranges. The measure is modified AGI.

If you are married filing separately and lived apart from your spouse all year, the Form 1040 instructions treat you as single for this purpose.

The Roth IRA has its own, much higher test ($153,000 to $168,000 for single filers in 2026, and $242,000 to $252,000 for joint filers). It is a separate calculation; see the Roth income limit guide.

Modified AGI for a freelancer

Publication 590-A's Worksheet 1-1 starts with your AGI figured without the IRA deduction itself, then adds back the student loan interest deduction, the foreign earned income exclusion and a few other items. The freelancer takeaways:

1. Half of your self-employment tax is already out. It is an adjustment, so it lowers AGI before you reach the IRA test.
2. A Solo 401(k) or SEP deduction is also out. This is the lever, and it is the point of the worked example below.
3. The student loan interest deduction goes back in. If you claim it, your modified AGI is higher than your AGI.
4. The QBI deduction is not part of AGI, so it doesn't help here. It is taken below the line.

The deduction formula

Section 219(g)(2) reduces the limit by the share of the $10,000 range ($20,000 on a joint return) that your modified AGI has used up. Inside the range for a single filer:

Deduction = limit × (91,000 − modified AGI) ÷ 10,000, rounded up to the next $10, with a $200 floor until the deduction reaches zero.

The Form 1040 instructions' worksheet does exactly this with a 70 percent multiplier for 2025 (80 percent at 50 or older), which is $7,000 (or $8,000) over $10,000. For 2026 the same arithmetic gives 75 percent and 86 percent. Those two percentages are our calculation from the new limits, not a quote from a 2026 form.

The part you can't deduct is not lost. Publication 590-A: "To designate contributions as nondeductible, you must file Form 8606." That form tracks your after-tax basis so you aren't taxed twice on the money later. If you intend to use it as the first step of a conversion, the backdoor Roth guide covers the pro-rata trap.

Worked Example: Dana and the $76.52 Cliff

Dana is a single, 38-year-old freelance illustrator. Schedule C net profit is $98,000, she has no other income, takes the standard deduction ($16,100 for unmarried filers, Rev. Proc. 2025-32) and has no student loans. She is hypothetical, and every figure was computed with node -e.

Self-employment tax is $98,000 × 92.35% × 15.3%, or $13,846.96, assuming net earnings are below the Social Security wage base. Half of it, $6,923.48, is an adjustment. Her AGI before any retirement deduction is $91,076.52.

That is $76.52 above the $91,000 ceiling. If a plan covers her and she saves nothing in it, her traditional IRA deduction is zero. If no plan covers her, it is a full $7,500. The same dollars, different outcomes, depending on one fact.

Four ways to spend 2026

• None: no retirement contribution.
• IRA only: a $7,500 traditional IRA, no Solo 401(k) or SEP at all, so she is not covered and the deduction is full.
• 401(k) only: a $7,500 Solo 401(k) employee deferral, no IRA.
• Both: the $7,500 deferral plus a $7,500 IRA. The deferral covers her, so the phase-out applies. Her modified AGI is $98,000 minus $6,923.48 minus $7,500, or $83,576.52, so the IRA deduction is $7,500 × (91,000 − 83,576.52) ÷ 10,000 = $5,567.61, rounded up to $5,570. The other $1,930 is nondeductible and goes on Form 8606.

Section 199A has three independent limits, so all three were checked. Taxable income before QBI is at most $74,976.52, far below the $201,750 threshold for all returns other than joint and separate returns (Rev. Proc. 2025-32, section 4.26), so neither the specified service business phase-out nor the W-2 wage and property limit applies. The third limit, 20 percent of taxable income before QBI with no net capital gain, is the lowest of the two figures in every column and sets the deduction. In the "401(k) only" column, 20 percent of QBI after the deferral would be $16,715.30, above the $13,495.30 cap.

Where $1,320.00 comes from, and why not $1,650

A $7,500 deduction at 22 percent would be $1,650. The saving is $1,320.00 because the same deduction lowers taxable income before QBI by $7,500, and because the cap binds, the QBI deduction falls by 20 percent of that, $1,500. Taxable income drops $6,000, all of it inside the 22 percent bracket (Dana's taxable income of $59,981.22 sits between $50,400 and $105,700), and $6,000 × 22% = $1,320.00. A retirement deduction always claws back part of itself through the QBI deduction; the Solo 401(k) retroactive adoption guide works through the same effect.

The "Both" column straddles a bracket

The extra $5,570 IRA deduction lowers taxable income by $4,456 (80 percent). Taxable income was $53,981.22 and ends at $49,525.22, crossing the $50,400 line. So $3,581.22 of it is saved at 22 percent ($787.87) and $874.78 at 12 percent ($104.97), for $892.84 in total. One rate for the whole deduction would be wrong. (Dana's 401(k) deferral alone is worth the same $1,320.00 as the IRA alone, which is why the second contribution is the interesting one.)

What the example does and doesn't say

It doesn't say "skip the Solo 401(k)": the 2026 deferral limit is $24,500 against the IRA's $7,500. The point is narrower. If all you want is the first $7,500 of tax-deferred saving, the IRA with no plan keeps you uncovered; once you add a plan, the IRA stops being a free second deduction. Dana's second contribution is worth $892.84 for a $7,500 outlay, with $1,930 nondeductible. See SEP-IRA vs. Solo 401(k) and Solo 401(k) contribution limits for what the plan route allows.

Timing: Which Decisions Close on December 31?

Publication 590-A: "Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions." For most people that means April 15, 2027 for 2026.

The plan side has different clocks. A Solo 401(k) in its second or later plan year generally needs its deferral election in place by December 31, while employer contributions and first-year deferrals run later; the retroactive adoption guide lays out both. Because plan contributions decide whether you are covered, and coverage decides whether the IRA is deductible, make the choices together. Funding an IRA in December and a SEP in April can turn a deductible IRA into a partial one after the fact.

Traps That Catch Freelancers

• Assuming the Solo 401(k) and IRA stack for free. They are separate buckets, but the plan ends the unlimited-income deduction.
• Testing the wrong income. Modified AGI is after the plan deduction and half of self-employment tax, before the IRA deduction, with student loan interest added back.
• Skipping Form 8606 for the nondeductible portion.
• Ignoring a spouse's plan. See the spousal IRA guide for the joint household, and the Saver's Credit if your income is low enough that a credit beats a deduction.

Frequently Asked Questions

Can a freelancer with a Solo 401(k) or SEP-IRA still deduct a traditional IRA contribution?

Sometimes. You can always contribute, but the deduction depends on whether you are covered by a retirement plan and on your modified AGI. The Form 1040 instructions say you are covered if you were self-employed and had a SEP, SIMPLE or qualified retirement plan, and Publication 590-A says you are generally covered by a defined contribution plan if amounts are contributed or allocated to your account for the plan year. For 2026, a single filer who is covered gets a full deduction at $81,000 of modified AGI or less, a partial deduction up to $91,000 and none above that (Notice 2025-67). If you are not covered at all, there is no income limit on the deduction. Whether an open plan with no 2026 contribution leaves you uncovered is a point the two IRS sources word differently, so confirm with a CPA or EA.

What are the 2026 traditional IRA deduction phase-out ranges?

If you are covered by a workplace or self-employed plan, Notice 2025-67 sets the 2026 ranges at $81,000 to $91,000 for single and head of household filers and $129,000 to $149,000 for joint filers where the contributing spouse is covered. If you are not covered but your spouse is, the range is $242,000 to $252,000 on a joint return, and a married person filing separately is phased out between $0 and $10,000. The measure is modified AGI, which is AGI figured without the IRA deduction and with the student loan interest deduction added back, so a Solo 401(k) or SEP deduction lowers it first. The IRA limit itself is $7,500, or $8,600 at age 50 or older. These are federal figures; confirm your own with a CPA or EA.

How much of my IRA contribution is deductible inside the phase-out range?

The deduction falls in a straight line across the $10,000 range for a single filer. The arithmetic is your limit multiplied by (91,000 minus your modified AGI) and divided by 10,000, rounded up to the next $10, with a $200 minimum until the deduction reaches zero. At $86,000 and the $7,500 limit that is $3,750. The part you cannot deduct stays a valid contribution, but you must report it as nondeductible on Form 8606. In the worked example, modified AGI of $83,576.52 allows a $5,570 deduction and leaves $1,930 nondeductible. The 2025 IRS worksheet uses 70 percent and 80 percent, which are the same arithmetic on last year's limits; the 2026 equivalents of 75 and 86 percent are our calculation. Confirm with a CPA or EA.

Does contributing to a Solo 401(k) lower the income that counts for the IRA phase-out?

Yes, and that is the planning lever. Modified AGI for this purpose is AGI figured without the IRA deduction itself, so a Solo 401(k) deferral or SEP contribution that you deduct on Schedule 1 reduces it. In the worked example a $7,500 deferral takes a freelancer with $98,000 of net profit from $91,076.52, which is $76.52 above the point where the deduction vanishes, to $83,576.52, which leaves a $5,570 IRA deduction instead of none for a covered filer. Against a freelancer with no plan at all the deferral instead cuts the IRA deduction from the full $7,500 to $5,570, because the deferral makes her covered. Deferral timing rules differ by plan year, so confirm yours with a CPA or EA.

What is the deadline to fund a 2026 traditional IRA?

For most people, the due date of the 2026 return without extensions, which is April 15, 2027. Publication 590-A says contributions can be made at any time during the year or by the due date for filing your return for that year, not including extensions. The catch for freelancers is that the coverage question follows what you do in the plan, and plan contributions can have different deadlines from the IRA, so decide the plan and IRA contributions together before you fund either. Confirm the plan deadlines for your situation with a CPA or EA.

How much tax does the traditional IRA deduction save in the worked example?

In the example (single, $98,000 of Schedule C net profit, standard deduction, no other income), the fully deductible $7,500 IRA saves $1,320.00 of federal income tax, not the $1,650 you would get by multiplying by 22 percent, because the deduction also lowers the qualified business income deduction through the taxable income cap. The $5,570 partial deduction stacked on a $7,500 Solo 401(k) deferral saves another $892.84, which includes a slice taxed at 12 percent because the deduction crosses the $50,400 bracket line. The figures use 2026 rate schedules and can differ from a filed return by a few dollars. Confirm with a CPA or EA.

Authoritative References

• IRS Publication 590-A (2025), Contributions to Individual Retirement Arrangements
• IRS Notice 2025-67 (2026 retirement plan limits)
• IRS Instructions for Form 1040 (2025)
• IRS Rev. Proc. 2025-32 (2026 inflation adjustments)
• 26 U.S.C. 219, Retirement savings
• IRS, IRA deduction limits

Keep the paper behind the deduction. Your retirement contributions are only half of a Schedule C return; the other half is the receipts that set your net profit and the modified AGI this test starts from. Start a free CentSense account to scan business receipts with AI as they arrive and log your business miles. The free tier includes 10 AI receipt scans a month, no credit card required, and the Solo plan is $5 a month.

This guide is general education for U.S. freelancers who file Schedule C. It is not personalized tax, legal or financial advice. Dana is hypothetical; her income and contributions are illustrative. The tax computations are federal only and use the 2026 rate schedules, standard deduction and section 199A threshold in Rev. Proc. 2025-32 and the 2026 IRA limits and phase-out ranges in Notice 2025-67, assume Schedule C is the only income with the standard deduction, no other credits or adjustments and no net capital gain, and use the rate schedules rather than the IRS Tax Table, so a filed return can differ by a few dollars. Self-employment tax figures assume net earnings below the Social Security wage base. Publication 590-A and the Form 1040 instructions cited are the 2025 editions; the 2026 deduction percentages are our own arithmetic. Whether a plan with no 2026 contribution makes you covered is worded differently across IRS sources, so confirm with a CPA or EA. Quotations come from IRS Publication 590-A, the Instructions for Form 1040 and the Internal Revenue Code as published on the cited pages. Confirm your own facts with a CPA or EA before relying on any figure.