What is a “nondeductible contributions” with respect to Form 1040, Line 32?

Asked by: James Gaffen

What is a nondeductible contribution?

Any money you contribute to a traditional IRA that you do not deduct on your tax return is a “nondeductible contribution.” You still must report these contributions on your return, and you use Form 8606 to do so. Reporting them saves you money down the road.

What is a nondeductible employee contribution?

Definition. Contribution made by a participant to an employer sponsored plan on an after-tax basis. Nondeductible employee contributions are typically made to a 401(k) or 403(b) plan. Nondeductible employee contribution are usually maintained in separate accounts from other plan assets.

How do I know if I made a nondeductible IRA contribution?

The easiest way to track and report your deductible and nondeductible IRA contributions is to complete and file Form 8606, “Nondeductible IRAs,” with your federal income tax return each year. Contact us with any questions you may have regarding your IRAs.

What is a nondeductible contribution to a Roth IRA?

A non-deductible IRA is a retirement plan you fund with after-tax dollars. You can’t deduct contributions from your income taxes as you would with a traditional IRA. However, your non-deductible contributions grow tax free.

Is my IRA contribution deductible or nondeductible?

Yes, IRA contributions are tax-deductible — if you qualify. To be clear, we’re talking here about contributions to a traditional IRA. Contributions to a Roth IRA are not tax-deductible.

Why would you make a non-deductible IRA contribution?

Because nondeductible IRA contributions are made with after-tax dollars, they come out tax-free in retirement. In this case, you are only taxed on the earnings portion of your retirement distributions.

Who can make nondeductible IRA contributions?

Rules for making non-deductible IRA contributions

  • Individual must have earned income (usually W-2 wages)
  • The deductibility phase-out is based on filing status, income (MAGI), and whether or not the individual(s) are eligible to participate in a retirement plan at work.

How much can you contribute to a nondeductible IRA?

(The maximum IRA contribution in 2020 is $6,000, or $7,000 if you’re 50 or older; the limits were the same in 2019.) You can typically leave the nondeductible IRA open if you want to pull this maneuver again next year, though check to ensure your account provider doesn’t require a minimum balance.