Author Topic: Non Deductible IRA  (Read 440 times)

brooklynmoney

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Non Deductible IRA
« on: June 03, 2018, 12:45:01 PM »
Every year since 2009 I've contributed up to the max into an IRA (5K - 5.5K), but due to my income the entire contribution is non-deductible. I also have a rollover IRA. The rollover IRA has a balance of about 112K. The Non Deductible IRA is at about 83K total, with 53K of that non-deductible contributions. I have the option to rollover the rollover IRA into my current 401K. I've been holding the funds in the rollover since like 2005, so I have significant gains and a low basis (I know this isn't taxable if I roll it over). I'm in a pretty high tax bracket -- I think about 35%.

What should I do?
Should I rollover the rollover IRA into my 401K and then convert the non-deductible IRA account into a Roth IRA? I know I would have to pay taxes on the gains, I think at my regular income tax rate, right? I usually try to find ways to minimize my income at this stage of my life.

Should I stop making these contributions? I know the money grows tax deferred, but it will be taxed as income when I withdraw whereas if I just kept that money in a regular brokerage account it would be taxed at the capital gains rate, right? And I can access it anytime w/out having to worry about penalties.

Thanks in advance for any advice.



seattlecyclone

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Re: Non Deductible IRA
« Reply #1 on: June 03, 2018, 05:57:05 PM »
I think a non-deductible IRA usually isn't that great of a deal unless it's converted to Roth shortly thereafter as part of a backdoor Roth. Would your 401(k) also accept a rollover of the pre-tax gains from your after-tax IRA? Nothing in the law prevents this, it's up to the plan rules to accept it or not. If you can do this you'll then be able to convert the remainder to Roth and pay very little tax on it. You'll then have empty traditional IRAs to enable easy backdoor contributions in the future.

brooklynmoney

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Re: Non Deductible IRA
« Reply #2 on: June 03, 2018, 06:04:58 PM »
Thatís a good question I will ask.