Thursday, June 21, 2007

Should You Be Making Non-Deductible Contributions to an IRA?


Crazy talk, you say? Maybe Not....

If you are above a certain income ($103K for joint income) you are not allowed to claim any tax deduction for contributions made to an IRA. Similarly, if you are above $166K for joint income, you can not make contributions into a Roth IRA.....

But, tax loophole time! Starting in 2010, you can convert your IRA into a Roth IRA, no matter what your income is! You would normally have to pay taxes on the amount of money in your IRA which you claimed a tax deduction for....

But not if you didn't receive a tax deduction for that money!

This means that if you are above the limits for a Roth IRA eligibility, you can sneak in, by making a bunch of crazy non-deductible IRA contributions from 2007-2010, and then converting your IRA balance into a Roth at no charge.

Risks: Congress could always change the laws. Disclaimer: Verify this w/ tax professional to make sure I am right.

2 comments:

Her Every Cent Counts said...

IRA's confuse me to pieces. Roth IRA's confuse me even more! But at least I don't have to worry about trying to sneak into a Roth IRA because I make too much money. I doubt that will ever happen.

Alex said...

IRAs confuse me a little too. I think Roths are really a great invesment vehicle if you are in a moderate or low income bracket since they're pretty to easy to draw from and there aren't too many restrictions and rules.