Non-Deductible IRA Contributions: A Smart Move Before the Tax Deadline?

As the April 15 tax deadline approaches, you still have a few days left to make a non-deductible contribution to your traditional IRA for the 2024 tax year—a small but powerful step in your long-term retirement strategy.

Why You Might Consider Making a Non-Deductible IRA Contribution (and What That Actually Means)

When people think of contributing to an IRA, they often assume it’s all about the tax deduction. But even if you earn too much to deduct your traditional IRA contribution—or you already maxed out your deductible retirement contributions—there can still be a valuable reason to contribute to a non-deductible IRA. Yes, we’re talking about a taxable IRA—and while it might sound counterintuitive, it can still be a smart move.

What Is a Non-Deductible IRA?

A non-deductible IRA is just a traditional IRA contribution that you can’t deduct on your taxes because of your income level or access to a workplace retirement plan. You still get to invest the money and allow it to grow tax-deferred. When you withdraw it later in retirement, you’ll pay taxes on the growth—but not on the original contribution, since you’ve already paid taxes on that.

Why Would Anyone Do This?

Great question! Here are a few reasons a taxable (non-deductible) IRA might make sense:

• You’ve maxed out other tax-advantaged accounts.
  Already maxed out your 401(k) or Roth IRA options? A non-deductible IRA might be your next best step for tax-deferred growth.
• You’re planning to do a backdoor Roth IRA.
  If your income is too high to contribute directly to a Roth IRA, one option is to contribute to a non-deductible traditional IRA and then convert it to a Roth. This is known as a backdoor Roth IRA, and it’s completely legal and commonly used by high earners. Just be mindful of the pro-rata rule if you have other pre-tax IRA money—it could create a tax surprise.
• You want to grow money in a tax-deferred account.
  Even though you don’t get an up-front deduction, your investments still grow tax-deferred in an IRA. Over time, that compounding can make a meaningful difference.

What’s Involved?

• Open a traditional IRA. If you don’t already have one, you can open it through most custodians (like Fidelity, Schwab, or Vanguard).
• Make your annual contribution. For 2024, the limit is $7,000 if you’re under 50, or $8,000 if you’re 50 or older.
• Track your basis. Because these contributions are made with after-tax dollars, you’ll need to file IRS Form 8606 each year you make a non-deductible contribution. This ensures you don’t pay taxes again when you withdraw your contributions in retirement.

Is It Right for You?

Non-deductible IRAs aren’t for everyone—but they can be a valuable piece of your financial plan, especially if you’re in a high-income bracket and looking for more ways to grow your wealth efficiently. Like many financial decisions, the best choice depends on your bigger picture: your income, goals, tax situation, and what other accounts you’re already using.

Curious if this strategy fits into your financial plan?

Contact us for a complimentary consultation and we’d be happy to talk through your options. Let’s see if it makes sense for you.