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.

How do I track a non-deductible IRA?

The easiest way to track and report your deductible and nondeductible IRA contributions is to complete and file Form 8606, “Nondeductible IRAs,” with your federal income tax return each year. Contact us with any questions you may have regarding your IRAs.

Why invest in a traditional IRA if not deductible?

Non-deductible contributions create a retirement tax diversification plan. A non-deductible IRA makes a Roth conversion less taxing. Contributing even if you can deduct means a faster buildup of retirement savings. You should contribute simply because you can.

Is a nondeductible IRA the same as a traditional IRA?

Unlike a traditional IRA, which is tax-deductible, non-deductible IRA contributions are made with after-tax dollars and provide no immediate tax benefit. In a given tax year, as long as you or your spouse have enough earned or self-employment income, you can each contribute to an IRA.

How are nondeductible IRA contributions treated by the IRS?

But any nondeductible IRA contributions are treated as your basis (your sum total). Since you effectively paid tax on the money when you made the contribution, you won’t have to pay tax on it again later. The IRS keeps track of filers who have paid taxes on nondeductible contributions with the mandatory Form 8606. 2 

What’s the difference between a traditional IRA and a non deductible IRA?

Savers must also keep track of their own contributions to non-deductible plans so that they can be taxed appropriately upon retirement withdrawals. Unlike a traditional IRA, which is tax-deductible, non-deductible IRA contributions are made with after-tax dollars and provide no immediate tax benefit.

Can a non deductible IRA be commingled with a Roth IRA?

And unlike a Roth IRA, deductible and non-deductible IRA contributions can be commingled in the same account. Non-deductible contributions to an IRA don’t provide an immediate tax benefit because they are made with after-tax dollars.

When do you start taking distributions from a non deductible IRA?

Once you reach age 72, the IRS requires you to aggregate the value of all your deductible and non-deductible IRAs and begin taking distributions from your traditional (but not Roth) IRAs. If you made non-deductible contributions, then any distribution contains both a taxable and a nontaxable portion.