Modeling Non-deductible IRAs

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Does anyone have advice on the best way to model contributions to a non-deductible IRA in ESP?

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dan royer's picture

So this is just an IRA where you don't get a tax deduction? OK, so I guess the problem is that contributions are automatically deducted in ESPlanner--because it assumes a trad IRA.

The short answer is to create a special expenditures or series of special expenses to account for the taxes.

But I guess the problem is know how much those taxes are. If, in addition to the contribution, you also indicate a special non-tax related expense and then, in the same year, a corresponding taxable receipt, does that essentially represent the taxes you'd pay?

Using special transactions will not account for income from the investments.

Assuming the return rate for regular funds is the same as for retirement funds, is there any reason to do anything at all? Don't account for them as retirement contributions. The income you don't dispose of in that manner will (appear to) accumulate in regular assets. As they are post-tax, there's no tax on withdrawal, so not recording them as retirement will result in them not being recorded as taxable income when withdrawn.

Considering that capital gains on taxable investments are (currently) taxed at a lower rate than ordinary income, are you sure you want to put taxed income in a retirement fund?

Is it your intent to convert your taxed IRA contributions to a Roth IRA? Since ESP won't stop you from making excess contributions, perhaps you could just do nothing until the year in which you convert. Then, contribute as much to the Roth as you would convert. There will be no taxes involved because the income would have been taxed already.