What is a non-deductible IRA?

1 min readLast updated November 10, 2023by Rachel Carey

Uncover just what a non-deductible IRA is, what the pros and cons are and how a non-deductible IRA differs from other IRA options.

What is a non-deductible IRA? 

A non-deductible Individual Retirement Account (IRA) is a retirement savings vehicle allowing you to save for retirement. Unlike a traditional IRA, contributions to a non-deductible IRA are not tax-deductible. 

With a non-deductible IRA, you contribute money using income that has already been taxed. Unlike a traditional IRA, these contributions do not reduce their taxable income in the year they are made. 

Once the funds are inside the non-deductible IRA, they can grow tax-deferred. This means that any interest, dividends or capital gains generated by the investments within the account are not subject to annual taxation. 

When you eventually withdraw money from your non-deductible IRA, you only pay taxes on the earnings or gains realized over the years, not on the original contributions. This is because you've already paid income tax on the money you put into the account. 

Non-deductible IRAs are often used by those earners who are not eligible to make deductible contributions to a traditional IRA due to income limits or because they participate in an employer-sponsored retirement plan like a 401(k). Even without the upfront tax deduction, a non-deductible IRA still offers the benefits of tax-deferred growth, which can help you save more for retirement over time. 

Who is eligible for a non-deductible IRA?  

There are several criteria when considering who is eligible for a non-deductible IRA. Widely available, they are particularly relevant for those not eligible for a traditional or Roth IRA due to income limitations or participation in employer-sponsored retirement plans.  

In terms of who is eligible for a non-deductible IRA, it is important to assess: 

Income limits 

There are no specific income limits for contributing to a non-deductible IRA. However, eligibility for tax deductions on traditional IRA contributions is determined by income. If your income exceeds the allowable limits for deductible contributions, you may make non-deductible contributions. 

Participation in employer plans 

If you (or your spouse, if married) are an active participant in an employer-sponsored retirement plan, such as a 401(k), then your ability to deduct contributions to a traditional IRA may be limited based on your income. In this case, a non-deductible IRA becomes an attractive alternative for retirement savings.  

No age limit 

Unlike traditional IRAs, there is no age limit for contributing to a non-deductible IRA. Individuals of any age with earned income are eligible. 

Earnings requirement 

To contribute to an IRA, you must have earned income, such as wages, salaries or self-employment income. Passive income sources like rental income or dividends generally do not count. For example, if you earn $4,000 from self-employment, you can contribute a maximum of $4,000 to your non-deductible IRA for that tax year. 

No required minimum distribution (RMD) 

Non-deductible IRAs are not subject to RMD rules during the account holder's lifetime. This allows for continued tax-deferred growth and flexibility in managing retirement assets. 

It's important to note that while contributions to a non-deductible IRA are not tax-deductible, the investment gains within the account can still grow tax-deferred.  

However, proper record keeping and filing of IRS Form 8606 is essential to accurately track and report non-deductible contributions to avoid double taxation when you withdraw. 

How much can I contribute to a non-deductible IRA?  

The contribution limits for a non-deductible IRA are the same as those for a traditional or Roth IRA in that they are subject to annual adjustments by the IRS.  

For individuals under 50, the annual contribution limit for a non-deductible IRA is currently $6,500. If you are 50 or older, you can make an additional catch-up contribution of up to $1,000, bringing the total annual limit to $7,500. 

Unlike traditional IRAs, non-deductible IRAs do not have an age limit for making contributions. You can continue contributing as long as you have earned income, regardless of age. 

What are the pros and cons of a non-deductible IRA? 


Tax-deferred growth: one of the primary benefits is that the investments within a non-deductible IRA can grow tax-deferred. This means you won't pay annual taxes on your investments' interest, dividends or capital gains until you withdraw. 

Flexible contributions: non-deductible IRAs have relatively high contribution limits, allowing you to save substantially for retirement each year, especially if you're 50 or older and can make catch-up contributions. 

No income limits: unlike Roth IRAs, which have income restrictions, there are no income limits for contributing to a non-deductible IRA. This makes it accessible to high earners who might not qualify for deductible contributions to a traditional IRA. 

No mandatory distributions: non-deductible IRAs do not have required minimum distributions (RMDs) during your lifetime. This means you can let your investments continue to grow tax-deferred for as long as you wish, providing flexibility in retirement planning. 


No tax deduction: unlike traditional IRAs, contributions to a non-deductible IRA are made with after-tax dollars and are not tax-deductible. This means you won't receive an immediate reduction in your taxable income. 

Taxation on earnings: while your contributions are not taxed upon withdrawal (since you've already paid taxes on that money), the earnings or gains within the IRA are subject to ordinary income tax when withdrawn in retirement. 

Complexity: managing a non-deductible IRA can be more complex when you have both deductible and non-deductible IRAs. Keeping accurate records and properly reporting contributions and withdrawals is essential to avoid double taxation. 

Opportunity cost: some investors may prefer a Roth IRA because it allows for tax-free withdrawals of both contributions and earnings in retirement. A non-deductible IRA doesn't offer this tax-free benefit. 

Ultimately, the suitability of a non-deductible IRA depends on your specific financial circumstances, including your income, tax situation and retirement goals.  

Consulting with a financial advisor or tax professional can help you decide whether a non-deductible IRA aligns with your retirement savings strategy. Find a financial advisor perfectly suited to meet your needs with Unbiased.  

What are the different types of IRAs?  

In addition to non-deductible IRAs, there are several types of IRAs, each with its own eligibility criteria, contribution limits and tax treatments.  

That said, the different types of IRA are: 

1. Traditional IRA 

A traditional IRA allows individuals to make tax-deductible contributions, reducing their taxable income in the year of contribution. Earnings within the account grow tax-deferred, and taxes are paid when funds are withdrawn in retirement. 

2. Roth IRA 

Roth IRAs accept after-tax contributions, meaning there's no immediate tax deduction for contributions. However, qualified withdrawals, including earnings, are tax-free in retirement. Roth IRAs also offer greater flexibility for early withdrawals of contributions. 

3. Simplified Employee Pension (SEP) IRA 

SEP IRAs are designed for self-employed individuals and small business owners. The employer makes contributions, and they are tax-deductible. SEP IRAs have higher contribution limits compared to traditional and Roth IRAs. 

4. Savings Incentive Match Plan for Employees (SIMPLE) IRA 

Small businesses typically use SIMPLE IRAs, and like 401(k) plans, employees and employers can make contributions. Contributions are tax-deductible, and the plan is relatively easy to administer. 

5. Spousal IRA 

Spousal IRAs are either traditional or Roth IRAs, but they are opened in the name of a non-working or low-earning spouse. This allows couples to double their retirement savings by contributing to both spouses' IRAs. 

6. Inherited IRA 

Inherited IRAs are for beneficiaries who inherit an IRA from a deceased account holder. The rules for withdrawals and tax treatment depend on the beneficiary's relationship to the original account holder. 

7. Self-directed IRA 

Self-directed IRAs allow account holders to invest in a broader range of assets, including real estate, private equity and precious metals, providing more control over their investment choices. 

It's important to note that each type of IRA has its own contribution limits, withdrawal rules, and eligibility criteria based on factors like income, employment status and participation in employer-sponsored retirement plans.  

Choosing the right type of IRA depends on your financial circumstances and retirement goals. Consulting with a financial advisor or tax professional is advisable to make informed decisions regarding your retirement savings strategy. 

The bottom line  

If eligibility criteria leave you unable to invest in a traditional IRA due to income, a non-deductible IRA may be the answer. With a $6,500 maximum limit, increasing to $7,500 if you are over 50, plus opportunities for married couples to combine allowances, it may be just the retirement investment you’re looking for. 

As with any tax-deferment scheme, careful record-keeping is essential to avoid double taxation when withdrawing funds. 

With such a range of IRA options, all regularly employing updated limits and allowance thresholds, consulting with a financial expert is always beneficial. Unbiased can match you to the right financial advisor for your circumstances—find yours now. 

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.