Non-Deductible IRA Contribution - Should I Bother?

**LivingAlmostLarge** · 04-12-2016, 03:33 PM

Converting depends on if it makes tax sense. We did it and have waited till our income dipped and it has and now we're converting a bunch of stuff. I think talk to a tax professional for a plan.

**feh** · 04-12-2016, 06:06 PM

Originally posted by SavingBucks View Post

DH & I are no longer eligible to contribute to Roth IRAs which I guess is a good thing! We have contributed to non-deductible traditional IRAs last year but am pondering if it has any benefit at all vs just investing outside of the IRA. If I convert one to a Roth IRA then I am asked the balances of all my traditional IRAs (I have one traditional deductible one from long ago). It looks like I am being "over-taxed" for converting. The one I converted last year made only about $100 total. But by including the balance of the other IRA, the tax is over $1000.

1. Non deductible traditional IRA --- after tax with taxes paid on interest earned upon withdrawal

2. Roth IRA --- after tax with no interest paid on earnings when held long enough (5 yrs I think)

Conversion from #1 to #2 - - Turbo Tax is asking for balance of all traditional IRAs across the board (deductible or not) at the end of 2015 and tax is assessed even if the IRA is intact.

DH & I converted a large amounts of IRAs a long time ago and taxes were assessed across the board.

So my question is........is it better to have #1; to have #1 and convert to #2; or to just invest the monies outside of an IRA?

We are maxed out on our employer's plan each year and are debt free. Just looking for feedback.

We are in the exact same boat - income too high to contribute to a Roth, and existing balance of traditional IRAs is large enough that doing a back door Roth just doesn't make sense.

We invest in a regular taxable account as a result.

**JustBill** · 04-12-2016, 07:46 PM

One of the key determining factors is the time frame involved. I'd say if you're 20 or more years away from withdrawals, an IRA of any type is probably advantageous, backdoor Roth if needed.

Of course your anticipated tax rate in retirement compared to what you pay today is always a guiding factor.

Also keep in mind that Roth IRAs don't have RMD requirements to the original owner.

**SavingBucks** · 04-13-2016, 11:18 AM

Non-Deductible IRA Contribution - Should I Bother?

Thank you for the honest feedback.

As far as withdrawals go -- we anticipate never needing to withdraw until RMD time. We save 40-50% of our salaries now and will be cash flowing college for DD beginning in August. We are currently 54 and 56. I am planning to retire next year and will receive a pension. DH will work about 6 more years or so. Until that time, we will definitely not be a lower bracket.

DH would like to purchase rental property for cash -- this may take a while in southern California! That may make a taxable account better for this goal.

**TexasHusker** · 04-16-2016, 02:19 PM

Why would you ponder voluntarily locking away your money until 59.5 with zero tax incentive to do so? IRAs are a pretty risky trade off to begin with, much less without the IRS goading you to do it.

**sblatner** · 04-16-2016, 04:48 PM

That whole deal of converting when you have an existing traditional IRA gives me a stomach ache. Our income fluctuates and we have hit the max for income for Roth IRAs once before. I decided to skip that year as it was just too complicated.

**sv2007** · 05-01-2016, 01:07 AM

Originally posted by SavingBucks View Post

DH & I are no longer eligible to contribute to Roth IRAs which I guess is a good thing! We have contributed to non-deductible traditional IRAs last year but am pondering if it has any benefit at all vs just investing outside of the IRA. If I convert one to a Roth IRA then I am asked the balances of all my traditional IRAs (I have one traditional deductible one from long ago). It looks like I am being "over-taxed" for converting. The one I converted last year made only about $100 total. But by including the balance of the other IRA, the tax is over $1000.

1. Non deductible traditional IRA --- after tax with taxes paid on interest earned upon withdrawal

2. Roth IRA --- after tax with no interest paid on earnings when held long enough (5 yrs I think)

Conversion from #1 to #2 - - Turbo Tax is asking for balance of all traditional IRAs across the board (deductible or not) at the end of 2015 and tax is assessed even if the IRA is intact.

DH & I converted a large amounts of IRAs a long time ago and taxes were assessed across the board.

So my question is........is it better to have #1; to have #1 and convert to #2; or to just invest the monies outside of an IRA?

We are maxed out on our employer's plan each year and are debt free. Just looking for feedback.

Converting only makes sense if your tax is lower now than later (and you can pay the tax with savings, i.e. not with $ in the IRA).

Without knowing your income/tax, #1 will be the way to go. A lot of investments generate income and that income can be reinvested 100% in the IRA. It is the way to build wealth.

As a fun thing to do, you can race your husband on Roth IRA.

My wife and I put in exactly the same amount of money into our Roths. So we sometimes makes fun of poorly the other invests (our Roths are very small amounts so it's more friendly teases). Esp funny when I beat her because she always says I'm crazy with investing.

Non-Deductible IRA Contribution - Should I Bother?