Non-Deductible IRA Contributions refer to contributions made to an Individual Retirement Account (IRA) that are not eligible for a tax deduction in the year they are made.
These contributions are typically made by individuals whose income exceeds the limits set by the IRS for deductible IRA contributions, or by those who are covered by a retirement plan at work. While the contribution itself does not provide an immediate tax benefit, the earnings on these contributions can grow tax-deferred until withdrawal.
For example, if a taxpayer contributes $5,000 to a non-deductible IRA, this amount does not reduce their taxable income for that year. However, when the taxpayer withdraws funds from the IRA in retirement, the original contributions can be withdrawn tax-free, while any earnings are subject to income tax.
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