Nondeductible IRA

Nondeductible IRA

Host : Here's another question on IRAs. Didn't there used to be a nondeductible IRA?

David : Yes. This is for those folks whose ability to contribute to a traditional IRA was phased out because of their higher income. Nondeductible IRAs continue to hang around, but most would be foolish to use a nondeductible IRA now.

With a Roth IRA, you pay taxes up front, but after age 59.5 your withdrawals are completely tax free.

With a nondeductible IRA, you pay taxes up front and you also pay taxes when you withdraw money in retirement. You get tax-deferred growth in the intervening years, but a Roth IRA is always better.

So if you can't use a deductible IRA because you're covered by a retirement plan and your income is too high, go with a Roth IRA instead.