Shepherd Financial Partner's Blog

Ask your Financial Planner : Non--deductible IRA

Should I contribute to a Non-Deductible IRA? 

 If you are:

• an active participant in an employer-sponsored retirement plan
• and are not able to make a tax-deductible contribution to a traditional IRA due to your income level

 You may want to consider making a non-deductible IRA contribution.

 

Here are the considerations:

• You may choose a Roth or Traditional IRA for your non-deductible contribution.  The principal withdrawal will be tax-free for the traditional IRA and the whole withdrawal will be tax-free for the Roth distribution, provided you are age 59 ½ and the account has been opened for at least 5 years, whichever is later.
• Having a tax-free source of income in retirement will provide diversification amongst your tax-free retirement choices.
• Tax rates for individuals were thought to decrease upon retirement, but given the current economic situation, it is possible that some individual’s tax rates may not decrease and may in fact, increase.
• Another option is to contribute to a Spousal IRA.  If one spouse is not working or not an active participant in an employer plan, that spouse may be able to contribute $5000 ($1000 additional if over 50) to their IRA.  You may receive a full tax deduction if joint income is less than $173,000.

Remember, you have until April 15^th 2012 to make 2011 contributions.  Please contact us for an assessment,  on a non-fee basis , of your suitability for this contribution.