I current have a Traditional IRA that I fund with after-tax dollars. I put the maximum of $6k in each year. I am not able to take a tax deduction for the Traditional IRA because my income is over the limit that allows for deductions… so as far as I am understanding, the Traditional IRA is not benefitting me, right?
Instead, I should roll over into a Roth IRA, right? So that I am not taxed when I take money out in the future, and because there is no tax benefit to me today? Thank you for helping!
Conversion to Roth completes the second step of the colloquially referred to Backdoor Roth strategy.
Read this for everything you need to know about Backdoor Roth and Form 8606:
* https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
Read this list of common screwups and solutions with respect to backdoor Roth. Beware of Screwup #5.
* https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/
> so as far as I am understanding, the Traditional IRA is not benefitting me, right?
You’d insulate yourself from capital gains taxes during your career inexchange for paying ordinary income taxes in retirement rather than capital gains taxes, so some benefit, albeit it relatively nominal.
>I should roll over into a Roth IRA, right?
Do you have deductible IRA balances? Have you been filing form 8606 with your taxes?
If your answers are No and Yes, you can do a backdoor roth and only pay taxes on whatever earnings exist in the account
You may find these links helpful:
– [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
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Any non-deductible contributions made to a traditional ira can be withdrawn tax free. Your “gains” will grow tax free until withdrawn, at which time you will pay taxes on those. My point is, your contributions will not be double taxed, and you will still get tax-deferred growth. OR you can back door them into a Roth, and have some tax liability now. It really depends on whether you think your tax rates will be higher now or later.
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