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What is a Nondeductible IRA?
A Nondeductible IRA is like a Traditional IRA in all respects but one: An individual cannot take a tax deduction for contributions made to the IRA.
Who can set up a Nondeductible IRA?
An individual can set up a Nondeductible IRA if that person is covered by a pension, 401(k) or other retirement plan, and that person’s income is above the limits for a Traditional (Deductible) IRA.
Why should you set up a Nondeductible IRA?
Although the money that a person puts into the IRA is not tax-deductible, that individual will not be taxed on the investment earnings on their contributions until that person withdraws the money. This allows the individual to accumulate more than if the investment earnings were taxed immediately.
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