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What is nondeductible contributions to ira

Forum|Forum|6 years ago
June 1, 2019
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I am confused as to say yes or no to this question - i have had a traditional IRA account for the past 4 years and have contributed $5000 the first two years and $5500 the next two. I have not withdraw ed any of it.

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Best answer by macuser_22

Most people want to deduct Traditional IRA contribution to lower their tax at the time of the contribution, but when you withdraw the money, you must pay the tax that was deferred.

You can, elect not to deduct the contribution, then it becomes after-tax "basis" in the IRA that will not be taxed again when withdrawn. It is not common to make such non-deductible contribution, since Roth IRA's are after-tax and have many advantages over Traditional IRA's if a non-deductible after-tax IRA is wanted.

Some people whose income levels prevent them from directly contributing to a Roth, will make non-deductible after-tax Traditional IRA contributions and then immediately convert that to a Roth as a "back-door" method of making a Roth contribution.

macuser_22Answer

Most people want to deduct Traditional IRA contribution to lower their tax at the time of the contribution, but when you withdraw the money, you must pay the tax that was deferred.

You can, elect not to deduct the contribution, then it becomes after-tax "basis" in the IRA that will not be taxed again when withdrawn. It is not common to make such non-deductible contribution, since Roth IRA's are after-tax and have many advantages over Traditional IRA's if a non-deductible after-tax IRA is wanted.

Some people whose income levels prevent them from directly contributing to a Roth, will make non-deductible after-tax Traditional IRA contributions and then immediately convert that to a Roth as a "back-door" method of making a Roth contribution.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

J

jhgorse

Does that mean to not withdraw an excess contribution to a traditional IRA? TurboTax gives that option when the contribution limit has been exceeded (e.g. 5,500 for 2018).