Sep 1, 2005 12:00 PM

By 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 administrative burden of tracking the purchase dates or cost basis of the IRA's assets. The distribution of the original contribution is a tax-free return of capital. And then there are the non-tax advantages: In many states, IRAs enjoy greater protection from creditors than other investment assets. Some people may also be less likely to frivolously spend money held in an IRA.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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