In the US, if you make a lot, are covered by a work retirement account or you contribute to a Roth, you can’t deduct traditional ira contributions right?

So that money gets added to the rest of your traditional ira monies right? and then when you hit retirement age, you have to pay income level taxes on deductions on that already post tax money right?

Why get taxed twice? What’s the benefit? +Not being able to touch it til retirement age.

  • MNByChoiceEnglish
    1·
    1 year ago

    First a note for others: The terms get confusing. A Roth IRA and a non-deductible contribution are different. Roth IRA is the name of an account type, not a description.

    In the US, if you make a lot, are covered by a work retirement account or you contribute to a Roth, you can’t deduct traditional ira contributions right?

    Not quite. The “covered by a work plan” part only sets income limits. A high salary without a employer plan can still contribute.

    Traditional IRA contributions and Roth IRA contributions share a contribution limit, they are not mutually exclusive.

    A 401K and a Traditional IRA are also not exclusive and have separate limits.

    A 401K and a Roth 401K share contribution limits.

    https://www.investopedia.com/retirement/should-you-contribute-nondeductible-ira/

    In a non-deductible IRA, however, the earnings from your contributions will be taxable when you withdraw them.

    Even so, the non-deductible IRA is a good choice for a high-wage-earner who has topped off other retirement savings options, like a 401(k). The earnings in the account will not be taxed until they is withdrawn, so there’s plenty of time for the balance to grow.

    I personally don’t love non-deductable due to the extra paperwork for tracking the deductible and non-deductable contributions. I think that paperwork goes away fast if one does a Backdoor Roth conversion.