Planning Briefs
Ins And Outs Of Nondeductible IRAs
Published Friday, May 30, 2014 at: 7:00 AM EDT
If you meet certain requirements, you may be able to deduct your contributions to a traditional IRA, although deductions are phased out at relatively low income levels. Yet even if you don’t qualify for a tax deduction, you still can contribute to an IRA, especially if you aren’t eligible to make Roth IRA contributions. You also might have “after-tax” assets in a 401(k) or other retirement plan that you want to roll over into an IRA. But having both deductible and nondeductible assets in the same account can complicate matters when it’s time to withdraw money.
Deductions for contributions to an IRA are phased out if you (or your spouse) participate in an employer-sponsored retirement plan and your adjusted gross income (AGI) exceeds an annual limit. For example, the phaseout for 2017 occurs between $62,000 and $72,000 of AGI for a single filer who is an active plan participant and between $99,000 and $119,000 for a joint filer. The range is from $186,000 to $196,000 if your spouse is the participant and you file jointly.
Meanwhile, your ability to contribute to a Roth IRA, which offers the promise of future tax-free payouts, is phased out in 2017 between $118,000 and $133,000 of AGI for a single filer and between $186,000 and $196,000 for a joint filer.
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