Usually, we talk about income limits for the Roth IRA but today we’re looking at a big tax mistake retirement investors make with the income limits on the traditional IRA. While there is no income limits on contributions there is an income limit on the deduction you get if you are covered by a retirement plan at work and today we’ll help you avoid the trap of having pre and post-tax money in your traditional IRA.
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I setup a SDIRA so I could contribute, then they tell me I can’t! I need help
This is my second year contributing $6000 towards non deductible IRA. Basis calculation in the form 8606 would be cumulative of previous year's non deductible portion of the contributions or just for the current year? So for this year my basis would be $12000 or just $6000. I'll appreciate any response to it.
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does this still count if you have a 403b? or strictly 401ks?
Good advice. I guess that means use the Employer plan and don't put $ into the traditional IRA, unless it's deductible.
Super helpful… what are the benefits of a traditional IRA if I don’t qualify for tax deductions? (Ie… if 2019 I contribute $6k post tax with $150k salary… 2020 do the same… 2021 do the same…)
Awesome Dustin. Watching this in Jan 2022 🙂 This is one of the best videos that explains when and why on Traditional IRA with respect to covered or not covered by Employee sponsored 401 plans! I have been searching for the last couple of days for this info and was unable to find it. I have been following you for a couple of weeks but just happened to click on this video today and helped answer my question. Thank you!
Nicely explained, in other words for higher income, the advice is to move the money yearly to a Roth account after placing it in a traditional IRA, it had already been taxed, so traditional IRA is the wrong place for it to be but due to income limitation, it can't go to a Roth directly.
What happens is the $6000 was put in a seperate IRA account 20 years ago and not deducted. I want to close it now — How do I tell the IRS that it's not taxable. (I do have a different IRA in a different bank.)
Will this apply if I have a separate account for deductable IRA and non-deductable IRA ?
Use form 8606. That separates the amounts for you.
Does this apply to Rollover IRA?
Can you invest in anything in the Traditional/Roth IRA, like MLP, REIT, etc… and not worry about the tax?
I guess this is a good video. I already knew all of this, except for all the nitty, gritty traps which don't apply if you do it right the first time (put your money in a Roth IRA not a Trad IRA.) This seems like basic IRA stuff. Like page 1 of the rules. But whatever, from the comments this seemed to help a lot of people. Great job!
Fill out and file your Form 8606 with your Fed. income tax. Keep a copy! Do the same for every year you have to and keep the copies! They are cumulative,you need last year's to fill out this year's and you will need them and to fill out another when you take distributions or do Roth conversions. Don't lose the forms and they will follow you around for the rest of your life most likely unless you exhaust the IRA. (The 8606 form deals with mixed deductible and non deductible contributions and how much tax you pay later at distribution or Roth conversion)
So your advice is….if i don't qualify for a deduction because i make too much… don't bother with a traditional IRA? what about the advantage that it's a tax deferred form of retirement? Thus my gains grow tax free until age 59? Of course I'll pay taxes on it then but the growth was still deferred until then. I feel it's still a good bucket to take advantage of even if i make too much.
This is really great stuff man. you are really helpful.
I hate to ask a dumb question… I am about to open a roth ira. I am 20 years old. Here is my question. I know that I put in money from my paycheck since its already taxed. Could I put in money that I get from cash tips as a server at a restaurant since I'm being tipped in cash and I only get taxed on credit card tips? Another example is say I get 100$ as a gift for my birthday etc. Or does it have to be only money from my income that has already been taxed?
This REALLY helped me ALOT!!!! Thank you
Thank for this info
Im 18 and i got a traditional ira put 100$ into it should i continue adding i think i qualify for the deduction but am not sure
Do your comments about a 401k plan also apply to a Roth 401k?
WOW! Good to know! Thank you! I was just thinking about stopping to contribute to my 401 K and contribute to my IRA instead. Now I realize it's not that simple. Need to do more research. Thank you!!!
This def helped me out with my traditional IRA, thanks so much
When you initially think his background is a green screen! Nice setup.
Best explanation in Youtube! Thank you.
Great info! If I understand there is a distinction between the DEDUCTION you receive for traditional IRA contributions vs. the CREDIT you receive for contributing post-tax earnings to the IRA. Do the AGI amounts included in the video apply only to the deduction component or also the credit component?
If you don't get a deduction then put the money in a Roth and avoid all the hassle. You have to keep accounting for this nonsense until you finally deplete all your non-Roth IRAs.
Amazing thanks for the information. What about this scenario, person has a Roth which is maxed every year. Has an Ira with 5K but only because of a job change and that job'ss 401k got rolled over. Should I keep the ira and keep contributing to it or should I roll the money to the Roth and consolidate it. Any advantage to having both?