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Why Not to Invest In Non-Deductible IRAsWhy Not to Invest In Non-Deductible IRAs

People who are too wealthy to qualify for either a deductible individual retirement account (IRA) or a Roth IRA have the option of contributing to a non-deductible IRA. Assuming they meet the basic criteria to contribute to an IRA,1 they can deposit up to $4,000 a year but are not entitled to claim an income tax deduction. Roughly one-fourth of all contributions to traditional IRAs are non-deductible.2

Christopher R. Hoyt, Professor of Law

September 1, 2005

14 Min Read
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Christopher R. Hoyt, professor, University of Missouri-Kansas City School of Law, Kansas City, Mo

People who are too wealthy to qualify for either a deductible individual retirement account (IRA) or a Roth IRA have the option of contributing to a non-deductible IRA. Assuming they meet the basic criteria to contribute to an IRA,1 they can deposit up to $4,000 a year but are not entitled to claim an income tax deduction. Roughly one-fourth of all contributions to traditional IRAs are non-deductible.2

Some financial planners encourage people to contribute to non-deductible IRAs because the investment income can compound tax-free in the IRA over their lifetime. Also, because an IRA is a tax-exempt trust, the IRA owner is free from the administ...

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About the Author

Christopher R. Hoyt

Professor of Law, University of Missouri

Christopher R. Hoyt, JD is a Professor of Law at the University of Missouri Kansas City School of Law where he teaches courses in the area of federal income taxation and business organizations.  Previously, he was with the law firm of Spencer, Fane, Britt & Browne in Kansas City, Missouri.  He received an undergraduate degree in economics from Northwestern University and he received dual law and accounting degrees from the University of Wisconsin.

Professor Hoyt has served as the Chair of the American Bar Association’s Committee on Charitable Organizations (Section of Trusts and Estates) and is on the editorial board of Trusts and Estates magazine. He is an ACTEC fellow, has been designated by his peers as a “Best Lawyer”, and was elected to the Estate Planning Hall of Fame by the National Association of Estate Planners & Councils.  He is a frequent speaker at legal and educational programs and has been quoted in numerous publications, including The Wall Street Journal, Forbes, MONEY Magazine, The New York Times and The Washington Post