I would personally say screw it, regarding the cosmology. However you can do the whole Wheel of Time thing (ages pass and are forgotten) as Tolkien was fairly adamant that he set Middle Earth as a fictional history of our world. So Ritual Magic going wrong kicks everyone back in time by 20,000 years or so and guess what the histories were wrong. By our time elves connected to the Divine all headed West on their ships ie. have all gone off to heaven or instead they completely reverted to faerie, along with the hobbits and surviving orcs and trolls freed of the influence of Sauron and Morgoth. Hell turns out to be where Morgoth was imprisoned and by the 1200’s a lot of other demons are also imprisoned there but they are not held as securely and can be summoned or escape.
Realms and Species
Like genies in Ars Magica the question here is of chosing sides, however unwillingly.
All the spirits in the book start off as divine servants of greater or lesser might. When Morgoth turned against the scheme, he and his followers (varied balrogs, vampires, werewolves are mentioned) chose to be infernal. Some of the various spirits were tasked to look after nature, those would either fit best as Faerie creatures like Tom Bombardil or as elementals spirits of magic like the spirit of the mountain that summons a storm to drive the Fellowship off Caradhas (I never bought that it was Saruman behind that storm like the movies say).
All the creatures twisted by Morgoth and Sauron would fall under the infernal, so orcs (corrupted elves), trolls (corrupted ents) and fell beasts (corrupted great eagles). With orcs and trolls at least I have read implications that greater and lesser demons took their shapes under the direction of morgoth and ruled them. As an example all of the giant spiders are of the brood of Ungoliant which was the greater demonic spider spirit who helped and then betrayed morgoth. Of course all undead fall under infernal too.
Creatures of the wild like certain of the Rohanic horses and the great eagles would have magic might, I would even say the watcher in the water would be a creature of magic rather than infernal, as it doesn’t appear to me to be evil but immoral. The Ents and their more mobile trees would have faerie, verging on dark faerie for those who hate men.
Following this pattern Elves can be divided into those who went West and those who did not. Those who went west, the Noldor, use the divine as can be seen in Glordindel in Frodo’s vision of his from the otherworld. Those who do not seem to have power over animals, and nature and would therefore fit under faerie powers best. Rivendell itself is meant to be a hidden valley that most cannot find, so it would be a regio.
Humans can be divided into those who have the blood of Numenor/Dunedain who are descended of both Noldor and godly blood and so have Divine connections, as shown by the perks in healing allowed to the rightful King. Those who have remained independent, like the Beornings and men of Rohan who use magic, especially the Beorning shapeshifters. Finally those who have fallen under the sway of Sauron, the Southrons and Easterlings whose shamans would use infernal methods.
Dwarves pretty much avoid all magic except for enchanting items.
Incantation is used on a minor level by a number of characters in the books you wouldn’t think of as even hedge magicians, Sam and Frodo calling on a name of power when fighting off Shelob for example, acts to force her away, which would be an example of Faith at work. Tom Bombadil’s rhymes are more powerful spells of binding that he used both to send the awakened tree back to sleep, and to banish wights in the barrowdowns, he also uses other rhymes to help the hobbits, in effect healing them of the infernal curse they were under. At a more minor level both Saruman and Wormtongue use poisonous words to far more effect than would be expected without a talent.
The healing hands of a king, the only one who could effectively use that herb to heal the breath of a Nazgul (can’t remember which) made me always assume that just as much power came from the (Divine appointed) office of the King as came from the herb. You also have ent droughts, giving permenant bonuses to all the physical characteristics.
During the chase in Moria, Gandalf wards a door reinforcing it, and the Balrog breaks the door down overcoming his warding level. During the siege of Minas Tirath the Witch King Nazgul uses an enhancement spell to break the gates down by timing his spells with the strikes of a battering ram Gram (which was obviously a preenchanted siege weapon).
Working with these themes, magicians can perform the more powerful effects only by utilising physical objects, and which obviously leads to a strong tradition in magical items creation and brewing potions. The most powerful spells cast without tools all appear to be mind affecting.
As you are planning a Third Age story, presumably before Sauron becomes openly the enemy, then he would really love to recruit your maga. Hey here is a lovely powerful focus ring he’s got on special offer in return for her teaching some of his friends.