Glossary: Non-Deductible IRA Contributions

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A non-deductible IRA contribution refers to money put into a traditional IRA, for which the taxpayer does NOT get a tax deduction.

This is similar in concept to a Roth IRA, but a non-deductible contribution to a traditional IRA is not exactly the same thing as a contribution to a Roth IRA.

Traditional IRA

Money put into a traditional IRA is typically tax deductible, but is subject to income limitations. The income limitations vary depending on filing status and whether or not the taxpayer is covered by a retirement plan through their employer.

When a taxpayer’s income is too high to make a deductible contribution, they can still make a non-deductible contribution to the IRA. (The maximum amount that can be put into an IRA in one year is currently $5,500 for people under age 50, and $6,500 for people age 50 and older; these limits apply to both deductible and non-deductible contributions.)

Non-Deductible Contributions

So, a non-deductible contribution refers to money put into a traditional IRA, where the taxpayer didn’t qualify for a deduction for that contribution.

The implication of this is similar to that of making a contribution to a Roth IRA. When a taxpayer withdraws money from the traditional IRA, some or all of that withdrawal will be tax-free because it’s a return of non-deductible contributions.