Non-deductible IRAs are subject to the same annual contribution limit as other IRAs. However, your contributions to a non-deductible IRA are made with after-tax dollars, while your contributions to a traditional IRA or 401 (k) can be deducted in the year in which they are made. ARE YOU SELF-EMPLOYED OR DO YOU OWN A SMALL BUSINESS? Remember that you can't invest money in a Roth IRA if your income is too high, but Roth IRAs are a valuable retirement savings tool because they allow you to increase your invested funds tax-free and make tax-free withdrawals on earnings as a retiree, as long as you follow certain rules. One of the best reasons to contribute to a non-deductible IRA is to take advantage of the opportunity to make clandestine contributions to a Roth IRA.
If you want to contribute to a Roth IRA and your income is too high to do so, using a non-deductible IRA can also allow you to benefit from the favorable tax rules associated with a Roth. Counting your IRA contributions as tax deductions depends on the type of IRA you invest in, the retirement plan your employer offers, and your income. Once you turn 72, the IRS requires you to accrue the value of all your deductible and non-deductible IRAs and start receiving distributions from your traditional (but not Roth) IRAs. While a non-deductible IRA isn't as restrictive in terms of eligibility, it also doesn't offer the same tax benefits as a traditional or Roth IRA.
Non-deductible IRAs don't offer the tax-free withdrawals on earnings offered by a Roth IRA or Roth 401 (k). However, there are several important differences between a non-deductible IRA and a traditional or Roth IRA, such as who can contribute and the benefits associated with investing in each of them.