From CNBC: 2024-09-05 12:53:33

High earners face phase-out limits for IRA contributions and deductibility. For 2024, annual contributions are capped at $7,000 with an extra $1,000 allowed for those 50 and older. Married couples with certain income thresholds may not contribute to Roth IRA. Additional restrictions apply to traditional IRAs for high-income individuals.

For high earners, a nondeductible IRA offers a backdoor to Roth contributions. Despite no upfront tax break, investors can convert funds to a Roth IRA, bypassing income limits. Utilizing this strategy allows for tax-free growth and withdrawals in retirement. A similar approach may be possible with a mega backdoor Roth conversion for some.

Nondeductible IRAs may not be beneficial without the backdoor Roth strategy. The administrative burden of tracking after-tax contributions and withdrawals can outweigh the potential benefits. Financial advisors recommend considering taxable brokerage accounts instead for long-term tax efficiency and flexibility in accessing funds.

Taxable brokerage accounts may be preferable to nondeductible IRAs for many investors. Long-term capital gains taxes on profits from assets like stocks are generally more favorable than IRA withdrawal taxes. Taxable accounts offer flexibility, no required minimum distributions, and potential tax advantages over nondeductible IRAs.

Read more: How high earners can use a backdoor Roth IRA