This perspective, however, ignores the asset protection benefits of a
nondeductible IRA, which should be considered when appropriate.
If a taxpayer maintains multiple IRAs, the cumulative amount of
nondeductible IRA contributions is used in determining the portion of a withdrawal from any particular account that is nontaxable.
Nonworking spouses who do not have any IRA assets but can make
nondeductible IRA contributions based on their spouse's earned income.
Greenberg suggested that if a woman can't contribute to a deductible IRA because of her income level or coverage by an employer-provided retirement plan, consider a
nondeductible IRA.
These include records of income received; expense items, especially work-related expenses; home improvements, sales, and refinances; investment purchases and sales information; documents for inherited property; medical expenses; charitable contributions; interest and taxes paid; and records on
nondeductible IRA contributions.
5, the employee cannot make a contribution to a traditional IRA not even a
nondeductible IRA contribution.
However, all the non-Roth IRAs owned by the taxpayer are treated as one IRA for purposes of determining the pro-rata taxable and nontaxable treatment of the converted amount, so an individual cannot simply elect to convert only his or her
nondeductible IRA contributions, even if all the individual's non-deductible contributions are in one IRA.
Nondeductible IRA contributions create "basis" for the IRA owner.
Because
nondeductible IRA contributions impose additional accounting problems, and provide generally no better result than simply investing in tax-free or tax-deferred non-IRA investments, most advisers do not recommend them.
Clearly, it would never be advantageous to invest nondeductible dollars, such as amounts one might contribute to a
nondeductible IRA, if growth comprises the entire return on the investment.
All taxpayers may continue to make a
nondeductible IRA contribution of up to the lesser of the dollar limit or 100% of compensation, to the extent that contributions to all IRA accounts (including Roth IRAs, discussed below) do not exceed the maximum annual limit in total.
Where a distribution is received from a traditional,
nondeductible IRA, a pro-rata computation is made to determine how much of the distribution relates to the taxpayer's
nondeductible IRA contributions and how much of it relates to the build-up of earnings inside the IRA.
