A backdoor Roth IRA contribution allows a taxpayer who is over the income threshold to make a
non-deductible contribution to a traditional IRA and immediately convert the money to a Roth IRA.
Also starting in 2002, for taxpayers who qualify, the annual
non-deductible contribution limit to Coverdell Education Savings Accounts increased to $2,000 a year per designated beneficiary, up from the $500 annual limit.
Otherwise, you will be making a
non-deductible contribution to the IRS.
To encourage better funding of defined benefi plans, the Act eliminates the 10%
non-deductible contribution excise tax for said deferrals and matching contributions, up to 6% of total compensation, that are non-deductible as a result of the combined deduction limits.
a) Please note: Investors who have made
non-deductible contributions to a Traditional IRA should have filed IRS Form 8606 with their tax returns to report each year a
non-deductible contribution was made.
Just as with tax-deductible retirement plan contributions,
non-deductible contributions compound tax-free every year the money remains in your account.
However, all the non-Roth IRAs owned by the taxpayer are treated as one IRA for purposes of determining the pro-rata taxable and nontaxable treatment of the converted amount, so an individual cannot simply elect to convert only his or her nondeductible IRA contributions, even if all the individual's
non-deductible contributions are in one IRA.
In 2010 annual
non-deductible contributions of $2,000 per beneficiary can be made.
If a client owns an IRA with nontaxable
non-deductible contributions, the charitable rollover distribution will come first from the taxable amount (deductible contributions and earnings).
Except for
non-deductible contributions made to your original IRA, the amount of the conversion is considered income and is taxable in the year you convert.
Individuals who are not eligible to make deductible contributions to a traditional IRA or to make contributions to a Roth IRA still may make
non-deductible contributions to a traditional IRA.
Since the determination of deductibility of IRA contributions is initially the responsibility of the taxpayer, the taxpayer must keep records to substantiate and distinguish between deductible and
non-deductible contributions.
