Should You Contribute to a Non-Deductible IRA?

Does it make sense to fund a person retirement account (IRA) if you do not get a tax break for it?

Many people who find themselves not eligible to completely fund a deductible IRA or Roth IRA overlook this simple alternative to sock away further {dollars} for retirement the place they will develop tax-free. And in contrast to a 401(ok) or different wage deferral plan, you can also make contributions to a non-deductible IRA as much as the tax submitting deadline.


Key Takeaways

  • Non-deductible IRAs lack a number of the benefits of a standard IRA or Roth IRA, however they come in useful if you wish to sock away extra for retirement than the present limits permit.
  • Non-deductible contributions have eligibility guidelines and contribution limits.
  • Savers should additionally maintain monitor of their very own contributions to non-deductible plans in order that they will pay taxes on withdrawals precisely.

Understanding the Non-Deductible IRA

In contrast to a standard IRA, which is tax-deductible, non-deductible IRA contributions are made with after-tax {dollars} and supply no fast tax profit. In a given tax 12 months, so long as you or your partner have sufficient earned or self-employment revenue, you may every contribute to an IRA.

For 2022, the utmost is $6,000, with a further catch-up contribution of $1,000 if you’re age 50 or over. For 2023, the restrict will increase to $6,500 however the catch-up quantity stays $1,000.

You will need to start taking required minimal distributions (RMDs) out of your IRA through the 12 months you flip 72 years outdated.

At one time, contributions had been disallowed previous the age of 70½. That is now not the case, and you may proceed making contributions at any age so long as you meet the IRS standards.

Contributions may be allotted throughout completely different sorts of IRAs. For instance, you might make additions to a tax-deductible, non-deductible, or Roth IRA in a given tax 12 months, so long as the mixed contributions don’t exceed the restrict. And in contrast to a Roth IRA, deductible and non-deductible IRA contributions may be commingled in the identical account.

Non-deductible contributions to an IRA don’t present a direct tax profit as a result of they’re made with after-tax {dollars}, like a Roth IRA.


Your capability to fund completely different sorts of IRAs is topic to restrictions primarily based in your revenue, tax submitting standing, and eligibility to take part in an employer-sponsored retirement plan, even when no contributions have been made to the plan in a given tax 12 months.

Should you and your partner do not need an employer plan at work, there aren’t any restrictions on totally funding a deductible IRA. Nevertheless, if both you or your partner is eligible to take part in an employer-sponsored plan, the next limits apply in 2022 and 2023:

  • For a deductible IRA, submitting as single or head of family eligibility in 2022 phases out between $68,000 and $78,000 in modified adjusted gross revenue (MAGI). (In 2023, the vary will increase to $73,000 to $83,000.) For married submitting collectively, the phaseout is between $109,000 and $129,000 of MAGI. (For 2023, the vary will increase to $116,000 to $136,000.)
  • For a Roth IRA, submitting as single or head of family, 2022 eligibility phases out between $129,000 and $144,000 of MAGI. (For 2023, the vary is $138,000 to $153,000.) For married submitting collectively, the phaseout is between $204,000 and $214,000. (For 2023, the figures are $218,000 to $228,000.)

To assist decide your eligibility, there’s an IRA deduction worksheet within the directions for IRS Kind 1040.


For any 12 months you contribute to a non-deductible IRA, you could embrace IRS Kind 8606 in your federal tax return. This kind paperwork your after-tax contribution, which is essential as soon as you start taking distributions.

Between ages 59½ and 72, you might be free to take any quantity out of your IRA with out a penalty, however you aren’t required to take action. When you attain age 72, the IRS requires you to combination the worth of all of your deductible and non-deductible IRAs and start taking distributions out of your conventional (however not Roth) IRAs.

Should you made non-deductible contributions, then any distribution incorporates each a taxable and a nontaxable portion. The nontaxable portion relies in your cumulative after-tax contributions, and the taxable portion relies on the cash these contributions earned over time. For instance, through the years, you contributed $50,000 to a non-deductible IRA, and by age 72, the account grew to $75,000. Roughly 33% ($25,000) of the account worth could be considerable and taxable.

The precise quantity of your RMD is decided by an IRS desk primarily based in your age. Your IRA custodian could ship you an announcement of how a lot you could take out, however this work is greatest completed by a tax advisor who also can assist you determine how a lot of your RMD is taxable if it consists of non-deductible contributions. It is also essential to maintain data of your contributions, as famous beneath.

The computation to find out the taxable and nontaxable ratio must be recalculated yearly primarily based on the December 31 worth of all of your IRA accounts. For buyers with a couple of IRA account, the distribution may be drawn from every account or only one.


One draw back to non-deductible IRAs is file maintaining. It’s your accountability to maintain monitor of and declare any nondeductible contributions. The IRS recommends maintaining your 1040 and 8606 types, in addition to the Kind 5498 that you simply obtain every year from the IRA custodian to doc your contributions and distributions.

That is essential in order that, upon the loss of life of the IRA proprietor, the associated fee foundation just isn’t misplaced and transfers to the partner or beneficiary.

Is a Non-Deductible IRA the Similar as a Roth IRA?

They don’t seem to be taxed the identical. In each varieties of accounts, after-tax cash is contributed. That’s, the investor pays the revenue tax due that 12 months on the cash that’s deposited within the account.

Nevertheless, a Roth IRA has a giant benefit: When the cash is withdrawn, presumably after the investor retires, no additional taxes might be due both on the cash deposited or the earnings the cash generates.

The earnings earned in a non-deductible IRA might be taxable when it’s withdrawn.

Even so, the non-deductible IRA is an efficient selection for a high-wage-earner who has topped off different retirement financial savings choices, like a 401(ok). The earnings within the account is not going to be taxed till it’s withdrawn, so there’s loads of time for the steadiness to develop.

Does a Non-Deductible IRA Have Required Minimal Deductions (RMDs)?

Sure. A non-deductible IRA has the identical RMDs as every other IRA. That’s, it’s a must to begin taking a certain quantity out per 12 months beginning at age 72. How a lot it’s a must to take out every year relies upon upon your age and different elements.

The federal government desires its cash. Despite the fact that you paid revenue tax on the principal, you have not paid tax but on the earnings.

How A lot Can I Contribute to a Non-Deductible IRA?

The contribution limits are the identical as for conventional IRAs. The numbers are revised yearly. For 2022, the utmost allowable is $6,000, plus a further $1,000 if you happen to’re age 50 or older. For 2023, the utmost is $6,500, and the catch-up contribution stays $1,000.

The Backside Line

Annual contributions to a non-deductible IRA are restricted, however over time they will add up. For example, if you happen to contributed $6,500 a 12 months for 10 years, starting at age 50 after which retired at age 60, assuming a 6% price of return, your contributions may develop to greater than $150,000 by age 70. And when you begin taking distributions, on this instance, about 44% could be a tax-free return of your contribution.