How is the Roth IRA different from a non-deductible IRA?


Q. I’m confused about the different tax treatments given the non-deductible traditional IRA versus the Roth IRA. Why isn’t a non-deductible traditional IRA treated the same way as a Roth IRA when withdrawals are made? With both IRAs there is no deduction, the earnings grow tax-free and no tax benefit when the contribution is made. Why are they different?
— Investor

A. You’re right. It can be confusing.

But you’re mixing up one important feature of these accounts.

First, you’re correct in saying that non-deductible IRAs and Roth IRA contributions do not allow a tax deduction for the year of contribution, said Nicholas Scheibner, a certified financial planner with Baron Financial Group in Fair Lawn.

But you are not entirely correct to say the “earnings grow tax-free” for both accounts, he said.

“In the non-deductible IRA, the earnings are tax-deferred,” he said. “In the Roth IRA, the earnings are tax-free.”

There are other differences between the two accounts: income contribution limits.

A non-deductible traditional IRA contribution can be done at any income level, he said, but a Roth IRA contribution has income limitations.

But there is no income limitation on a Roth conversion, Scheibner said.

“This allows for the potential for a Roth conversion to be done after a non-deductible IRA contribution has been funded,” he said.

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This story was originally published on May 20, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.