Or: There’s Basis In Them Thar Funds! If you have an IRA that has certain types of funds in it, you may be in a position to have some of your distributions treated as post-tax, meaning that you will not have to pay ordinary income tax on the distribution as you normally would. But what kinds of money is considered post-tax? The common way to have post-tax funds in an IRA is to make non-deductible contributions to the account. This occurs when you are not eligible to make deductible contributions due to income restraints, but you still wish to make IRA contributions for the year. For example, if in 2012 you have income in excess of $112,000 ($68,000 if single) and you’re covered by a retirement plan at work, you can still contribute up to $5,000 (plus $1,000 if over age 50) to an IRA – you just can’t deduct […]
non deductible ira contribution
Is It Really Allowed – Making a Non-Deductible IRA Contribution Followed By a Roth Conversion?
I occasionally receive this question: Can I make a non-deductible IRA contribution, and then shortly after convert the IRA into a Roth IRA? My income is too high for me to make a contribution directly to a Roth IRA. Image by Plbmak via Flickr According to the rules in place today, you can do this. Here are the applicable rules: There is no income limit for an individual to make a non-deductible IRA contribution. There is no income limit for an individual to make a Roth Conversion. There is no time limit on how long a contribution must be in a traditional IRA before converting it to a Roth IRA. Essentially this situation provides the individual with an income above the limits to contribute to a Roth IRA with an avenue to accomplish the funding of a Roth IRA. It seems too good to be true. And even though you […]
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.