Also, for clients with little or no IRA assets, those non-deductible IRA
contributions can be rolled into Roth IRAs, often with no tax or penalty, and grow tax- and RMD-free for years.
Clients who have solely made non-deductible IRA
contributions over the working years are obvious candidates for this strategy, especially as income tax rates are most likely on the rise.
Individuals who cannot deduct IRA contributions may still find a Traditional Non-Deductible IRA
If either spouse participates in an employer plan, both will be eligible for a non-deductible IRA
. Married taxpayers with AGI less than $160,000, may be eligible for a Roth or deductible IRA.
As a prod, they've now given us five IRAs: the traditional, deductible IRA; the non-deductible IRA
; the rollover IRA; the Roth IRA; and the Education IRA.
* Your Traditional account has been open for a short period of time and most of the balance is comprised of non-deductible contributions: Since there is little growth in your current IRA and since no taxes are owed on non-deductible IRA
contributions, your tax liability will be low at conversion because taxes are only paid on the growth funds and on the deductible contributions.
To do this, the corrected nondeductible contribution amount should be added to Form 8606, Non-deductible IRA
Contributions, IRA Basis and Nontaxable IRA Distributions, and attached to form 1040X.
Furthermore, the taxpayer must file Form 8606 to report a non-deductible IRA
contribution for each tax year a contribution is made, regardless of whether a tax return is filed.
Individuals not eligible to make deductible contributions can make non-deductible IRA contributions, and the earnings on the investments are not subject to taxation until the funds are withdrawn.
Clients need advice about investing in non-deductible IRAs. There are alternative investments that defer the taxes, but allow easier access to the funds.
Articles in the recent past have explained the new tax laws regarding IRAs and investigated the question of whether a taxpayer should make a non-deductible IRA
Of the deductible IRAs, the most common is the Traditional IRA; of the non-deductible IRAs
, the most well known if the Roth IRA.