What is the difference between a deductible and non-deductible IRA?
A. Anyone with earned income (wages, self employed business income, etc.) can make a contribution to an Individual Retirement Arrangement up to the lesser of $2,000 or total earned income. If you do not participate in a retirement plan (401K, Pension, Profit Sharing, etc.), the entire contribution is deductible. If you do participate in a plan, the portion of the contribution which is deductible depends on your total adjusted gross income. Non-deductible contributions do not affect your taxes currently. Deductible contributions reduce taxable income and therefore taxes as well. Both deductible and non-deductible contributions accumulate earnings tax free. When the assets are withdrawn from the arrangement, deductible contributions are fully taxable. When an arrangement has non-deductible contributions, a portion of the withdrawal is not taxable. That portion is based on the ratio of total arrangement assets to total non-deductible contributions multiplied so that once all assets are wi
