What if all of a person’s IRA savings are composed of nondeductible IRA contributions? If so, they can convert their entire non-deductible IRA to a Roth IRA and will only have to pay taxes on the earnings.

Can I contribute to a traditional IRA even if not deductible?

Non-Deductible IRAs Unlike a traditional IRA, which is tax-deductible, non-deductible IRA contributions are made with after-tax dollars and provide no immediate tax benefit. In a given tax year, as long as you or your spouse have enough earned or self-employment income, you can each contribute to an IRA.

Can a traditional IRA be converted to a nondeductible IRA?

When your traditional IRA balance is composed of deductible and nondeductible contributions, any amount distributed or converted from a traditional IRA is prorated to include a taxable and nontaxable portion of the assets.

How does a non deductible IRA contribution work?

It’s basically a two-step process: Make a non-deductible contribution to an IRA. Convert that money to a Roth IRA. It works because anyone is allowed to convert a traditional IRA to a Roth IRA, regardless of income. And because your original contribution was non-deductible, there will be little-to-no taxes to pay on the conversion.

Are there income limits on converting a traditional IRA to a Roth IRA?

However, in 2010, Congress eliminated the $100,000 income limit on Roth IRA conversions. This allows traditional IRA owners in all tax brackets to convert their accounts. Basically, you can convert the traditional IRA contributions to a Roth IRA with one caveat; a portion of the amount converted is subject to income tax.

Do you get a tax deduction for a traditional IRA?

Within certain income limitations (which may change annually), taxpayers in lower tax brackets can receive an IRA contribution deduction on their federal tax returns for deposits made to traditional IRAs.