Non-deductible IRA contributions

September 24, 2010

401(k) plan?

Q: Is there a reason to make a nondeductible contribution to an IRA?

A: There has always been a good reason to make nondeductible contributions to an IRA: The growth and income on such contributions are tax deferred. With new Roth IRA conversion rules beginning this year, there's an even more compelling reason: After making the non-deductible contribution, you can immediately convert (tax free) the amount to a Roth IRA, and future growth and income will be tax free (assuming there are only nondeductible contributions in the IRA).

Send your money management questions to medec@advanstar.com. Answers to our readers' questions were provided by Medical Economics consultant Barry Oliver, CPA, PFS, Thomas, Wirig, Doll & Co. Capital Performance Advisors, Walnut Creek, California.