How much can I contribute to a nondeductible IRA?
Non-Deductible IRAs For 2020 and 2021, the limit is $6,000, with an additional catch-up contribution of $1,000 if you are age 50 or over. 45 Beginning with the year in which you reach age 72, you must begin taking required minimum distributions (RMDs) from your IRA.
What is a nondeductible contribution to IRA?
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.
Where do I report nondeductible IRA contributions?
Use Form 8606 to report: Nondeductible contributions you made to traditional IRAs. Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs.
How do I make a nondeductible IRA contribution?
Rules for making non-deductible IRA contributions
- Individual must have earned income (usually W-2 wages)
- The deductibility phase-out is based on filing status, income (MAGI), and whether or not the individual(s) are eligible to participate in a retirement plan at work.
Should I make a nondeductible IRA contribution?
Generally you should use a nondeductible IRA only if you don’t qualify for other retirement accounts, because it does not provide the same tax advantages as other accounts. To determine if you are limited to a nondeductible IRA, start by calculating your modified adjusted gross income (MAGI).
Can I make a nondeductible contribution to my IRA?
A non-deductible IRA is a retirement plan you fund with after-tax dollars. You can’t deduct contributions from your income taxes as you would with a traditional IRA. However, your non-deductible contributions grow tax free.
When did nondeductible IRA contributions start?
1987 was the first year that nondeductible contributions were permitted to be made to a traditional IRA.
Can I file an 8606 for prior years?
Ultimately, the key point is simply that, because Form 8606 does not need to be filed annually, the ‘traditional’ tax preparation process of checking the past one or several years of tax returns still may fail to capture the reporting of prior years’ after-tax contributions.
Can you retroactively file Form 8606?
You can file delinquent Forms 8606, even as far back as 1995, on a standalone basis, meaning that you can file them without amending your tax returns. There can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing.
Can I make a nondeductible IRA contribution and convert to Roth?
You can make a nondeductible IRA contribution each year, then convert it to a Roth IRA using the backdoor approach. You’ll pay taxes on any converted amount that’s above your basis at the time you convert. 2 Your basis must be calculated using a pro-rata formula if you have other IRA accounts.
Are nondeductible IRAs a good idea?
In a backdoor Roth, investors make a non-deductible contribution to a traditional IRA and then quickly convert to a Roth IRA. Once the money is in a Roth IRA, it’s tax-free when taken out (if you meet the holding period and age requirements). This strategy only works if you don’t have any other traditional IRAs.