Taking Advantage of Non-Deductible IRA Contributions and Roth Conversions


Roth IRAs are often more attractive than regular IRAs because distributions are tax free and there are no required minimum distributions beginning at 70 1/2. The most common drawbacks with Roth IRAs are that contributions are not deductible and those with high incomes may not be eligible to make Roth IRA contributions.

If a Roth IRA sounds attractive but you cannot contribute because of your income level, there is an idea to consider. You simply make a contribution to a Regular IRA and then do an immediate conversion to a Roth IRA. Over time you would accumulate significant funds with all of benefits of the Roth IRA.


Everyone with wages can contribute up to $5,500 annually to a regular IRA. Those age 50 and above can contribute an additional $1,000. Contributions to a regular IRA are not deductible if you are eligible to participate in our employer's qualified retirement plan or if your income exceeds certain amounts.

Each year you would make a non-deductible contribution to a regular IRA. You would then instruct your IRA custodian to convert that amount into a Roth IRA. Because the contribution was not deductible and the conversion occurred before it had earned anything, there would be no taxable income to report and no taxes to pay on the conversion.

After 15 years, you would have contributed a total of $82,500 and after 25 years, you would have contributed $137,500. If you earned 6% annually, it would have grown to over $125,000 in 15 years and over $300,000 in 25 years. If the IRA contribution limits are increased and you contributed the maximum, your account would be even larger. Of course, if you earned less than 6%, the balance would be lower.


  • Using this strategy of maximum non-deductible regular IRA contributions annually and immediate Roth conversions can enable you to create a sizable Roth IRA account balance over time.
  • The tax laws are constantly changing and this opportunity could be eliminated.
  • As with any issue of this type, it may be advisable to consult with your tax or financial advisor before implementing strategy.

Only deposit products are FDIC insured.

The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

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