Nondeductible IRAs: Worth the Bother?

Traditional IRAs can be a great way to get a last-minute tax deduction, but high-income taxpayers often aren't entitled to deduct IRA contributions. If that's the case, does it still make sense to contribute at all?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at nondeductible IRAs and whether they make sense. Dan notes that if you can use the backdoor Roth IRA strategy to convert a nondeductible traditional IRA to a Roth without paying tax, then it definitely makes sense to consider nondeductible IRAs. But for others, the big problem with the nondeductible IRA is all distributions in retirement are taxed at ordinary rates, whereas even a normal taxable account gets preferential rates for dividends and long-term capital gains. Dan concludes that in general, you'll do better in a taxable account than using a nondeductible IRA if you can't convert it to a Roth without huge tax hassles.