Any advantage to non-deductible Traditional IRA contibutions?

Is non-deductible traditional IRA worth it?

Although any investor with earned income can make a non-deductible contribution to an IRA (up to $6,-2022 if under age 50) and still take advantage of tax-deferred growth, it still may not be advisable. Some people may even end up paying taxes twice.

What happens to the part of a traditional IRA contribution that is non-deductible?

Form 8606 for nondeductible contributions

Any money you contribute to a traditional IRA that you do not deduct on your tax return is a “nondeductible contribution.” You still must report these contributions on your return, and you use Form 8606 to do so. Reporting them saves you money down the road.

Does it make sense to contribute to nondeductible IRA?

Non-deductible IRAs lack many of the advantages of a traditional IRA or Roth IRA, but they come in handy when you want to sock away more for retirement than the current limits allow. Non-deductible contributions have their own eligibility rules and contribution limits that must be observed.

Can I withdraw non-deductible IRA contributions?

Non-deductible contributions to the IRA can be taken out without having to pay taxes on the funds, though. In a sense, people could get taxed twice on such contributions otherwise. However, it is important to tell the IRS that after-tax funds were contributed.

Can I convert a nondeductible traditional IRA to a Roth?

If you have a nondeductible IRA, you can convert it into Roth IRA. You won’t have to pay tax on your contributions to the account, but the account’s earnings will be taxable at the time of the conversion.

Do you have to file form 8606 every year?

You must file Form 8606 for every year when you contribute after-tax amounts (nondeductible contributions) to your traditional IRA. Conversions from traditional, SEP, or SIMPLE IRAs also must be reported on Form 8606.

What is the difference between a nondeductible IRA and a Roth IRA?

You won’t owe income tax on the nondeductible amount you contributed to the account, only the investment gains. Roth IRA contributions are made with after-tax dollars and withdrawals in retirement will not be subject to taxes. To be eligible for a Roth IRA, your income can’t exceed certain IRS limits.