Can Anyone Contribute to a Non-Deductible IRA?

Contributing too much to an IRA can cost you in tax penalties.
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Making a nondeductible contribution to an individual retirement account (IRA) allows you to pay tax on the money at your current rate, rather than the rate you pay in retirement. Though some of the eligibility requirements are the same, others differ depending on whether you are trying to make a nondeductible contribution to a traditional IRA or whether you want to contribute to a Roth IRA.

Compensation Required

Whether you're hoping to contribute to a Roth IRA or make a nondeductible contribution to a traditional IRA, you must have compensation. Compensation includes all your earned income, like wages or commissions, and alimony. If your compensation is lower than your annual contribution limit, your compensation becomes your limit. For example, say your contribution limit would be $5,000 but you only earned $4,600 in compensation. You can't contribute more than $4,600 to a nondeductible IRA.

Spousal IRA Contribution

The IRS does make one exception to the compensation requirement: if you are married filing jointly, your spouse's income can qualify you to make an IRA contribution. For example, say you didn't work this year for some reason — say, you couldn't find a job or just had a baby — but your spouse did. If you file a joint return, your spouse's compensation also counts for you, so you can still make a nondeductible IRA contribution to either a traditional or Roth IRA. However, you can't count the same compensation twice for IRA contributions. For example, if your spouse has $8,000 of compensation and contributes $5,000 to his IRA, you're limited to contributing $3,000.

Roth IRA Income Limits

You can't make contributions to Roth IRAs if your modified adjusted gross income exceeds the annual limits. The limits differ depending on your filing status, but the short of it is that if you make too much, you can't contribute that year. To find the updated limits, check IRS Publication 590. However, if your modified adjusted gross income is too high to qualify you for a Roth IRA, you can make a nondeductible contribution to a traditional IRA regardless of your income.

Traditional IRA Age Limits

The age limit for traditional IRA contributions applies to both deductible and nondeductible contributions. Beginning in the year you turn 70 1/2, you're cut off from making any contributions to a traditional IRA, even if you won't deduct them. Roth IRAs have no such age limits, however.

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