Are Roth IRA Contributions Tax Deductible?

Are Roth IRA contributions tax deductible?

The simple answer is no. But a more nuanced answer will note that although Roth IRA contributions themselves are not tax deductible, you can claim a Roth IRA tax credit or a claim a loss on a Roth IRA if eligible.

So let’s take a look at the various options at your disposal.

Non-Deductible Roth IRA Contributions

Unlike 401k or Traditional IRA contributions, Roth IRA contributions are not tax deductible. According to the Roth IRA funding rules established by the IRS, all your contributions must be made with after-tax dollars.

For example, let’s say you earn $40,000, and you’re in the 25% tax bracket. If you want to make a $5,500 tax deductible 401k contribution, you’ll put $5,500 in your 401k first and then you pay your taxes, which leaves you with $25,875 (75% of $34,500).

However, if you make a $5,500 non-deductible Roth IRA contribution, you’ll pay your taxes first, which leaves you with $30,000 (75% of $40,000). Then you’ll make your $5,500 Roth IRA contribution, leaving you with $24,500 in disposable income.
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7 Things You MUST Know About the Roth IRA for 2015

Does your Roth IRA measure up?

When you’re at the point in your life where you are adding to your Roth IRA in order to help plan for a stable and enjoyable retirement, it makes sense to have all of the current information regarding the current IRS regulations concerning the Roth.

Plus, you want to have a grasp of the current IRA rules for a given year. At this point, people are looking forward to 2015.

In some cases, you might have taken the maximum contribution amount into your Roth for 2014 and you’re thinking about saving for next year’s contribution.

Perhaps, you’ve got your eye on the tax season. No matter what, you want to know enough before you start making decisions about your IRA. Here’s a look at the Roth IRA rules for 2015.
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Dave Ramsey Might Think I’m Crazy. Here’s Why:

UntitledWhen I first read, Total Money Makeover, back in 2003, I was excited to find another personal finance expert that shared my recommendations regarding saving for retirement.

One of Dave’s core tips regarding investing is,

Get your free money first with your 401(k) match. After that, take advantage of the Roth IRA to get your tax-free money. Then go back to the 401(k) and max it out.

This is the same advice that I’ve been giving to individuals ever since I became a financial advisor.

But over the last year or so my opinion has changed. What I’ve realized is that the majority of people that save in their 401(k) s have no idea what they’re doing.

They’ve usually let their employer decide where to put their money and they never really have no clue in what they are investing into. 

Are you one of these people?


Because of this, I have changed what I believe.
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Earn Too Much For a Roth IRA? Nonsense!

earn too much roth iraDo you earn too much to make a Roth IRA contribution?

Under IRS rules, you’re prohibited from making a Roth IRA contribution if your modified adjustable gross income is more than:

  • $183,000 if you’re married filing jointly, or
  • $125,000 if you’re filing as a single person or head of household

If you fall into this category, you can’t make a Roth IRA contribution, right? Wrong.

While you can’t make a direct contribution to your Roth IRA, that doesn’t mean you should write off the idea of funding your Roth IRA this year.

You can still make an indirect contribution to your Roth IRA regardless of how much money you earn, and whether it’s a direct or indirect contribution, what’s most important is getting that money into your Roth IRA where it can grow tax-free and where you can withdraw it tax-free in your retirement years.
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