Non Deductible IRA Eligibility?
Since ” back door ROTHS” are not applicable for my clients can the couple below do a Non Deductible IRA and let it grow?
Couple jointly gross $ 278,000 in California and both participate in their 401k plans at work.
Not sure if too many people are doing non deductible IRAs anymore.
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-02 21:58
If each spouse has a pre tax IRA balance any conversion will be mostly taxable, and that is probably what you are referring to. Making ND TIRA contributions without the ability to convert those contributions to Roth is fairly rare. IRA basis from ND contributions must be reported on Form 8606, and results in all later distributions or conversions being subject to pro rating to determine the taxable amount. Some people prefer not to have to deal with Form 8606 for the rest of their lives and invest in taxable accounts instead.
If either spouse is participating in a workplace plan, that spouse may be able to roll the pre tax IRA dollars into that plan and then convert the IRA basis to a Roth IRA tax free.
Otherwise, making non deductible IRA contributions might be comparable to purchasing a NQ annuity without a separate death benefit. The basis is gradually recovered tax free, but all the gains will be taxable. With most annuities, the gains come out first and are taxable, but with an IRA the basis comes out pro rata.