Nicholas Scheibner is quoted on this topic in an article in NJMoneyHelp.com by Karin Price Mueller, originally published on May 20, 2021.
A 30-second read by Nicholas Scheibner, CFP®: It is confusing to differentiate between the Roth IRA and the non-deductible traditional IRA. Here are some key points that might help clarify things:
- Both types of IRA contributions (Roth and non-deductible) do not allow a deduction (reduction in income) during the year of contribution.
- In the non-deductible IRA, the earnings are tax-deferred.
- In the Roth IRA, the earnings are tax-free.
- In a withdrawal from the non-deductible IRA, only the money contributed is tax-free
- In a withdrawal from a Roth IRA, the entire amount is tax-free.
The reason there is a difference has to do with the income contribution limits.
- A non-deductible traditional IRA contribution can be done at any income.
- A Roth IRA contribution has income limitations.
- There is no income limitation on a Roth Conversion. This allows for the potential for a Roth conversion to be done after a non-deductible IRA contribution has been funded.
If you have any further questions, please reach out to your Baron Team.
Disclosure: This is a general communication being provided for informational purposes only. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your tax planning professional for personal tax advice.