Non-Deductible IRAs: A Sound Way to Save Even More for Retirement

Article | August 24, 2026

Authored by Johnson & Sheldon, PLLC

For decades, the annual contribution limit for IRAs remained at a relatively paltry level of $2,000, even for those who could not deduct their contributions. But the contribution limit for IRAs has continued to increase in recent years thanks to inflation adjustments.

Now, on the heels of recent legislation, you can stock away an even higher amount as your career progresses, thanks to special rules for “catch-up contributions.” As a result, you may want to also consider a nondeductible IRA to help supplement contributions to an employer-provided plan.

Background: The maximum contribution limit for IRA contributions has continually and gradually been raised over the years from $2,000 to now a highwater mark of $7,500 for the 2026 tax year. You have until April 15, 2027, to contribute for the 2026 tax year, but no extension is allowed. Deductions for contributions are phased out based on your modified adjusted income (MAGI) and whether you (or your spouse, if married) participate in an employer-sponsored retirement plan like a 401(k).

Most high-income earner employees won’t qualify for deductible contributions because of the MAGI limits. However, you can still contribute to a traditional IRA on a nondeductible basis up to the higher of your earned income and the contribution limit. This provides the same tax deferral benefits afforded to deductible contributions. Even better, when distributions are finally made in retirement, only the portion attributable to deductible contributions and earnings is taxable. The portion representing nondeductible contributions is off-limits to Uncle Sam.

The recently-enacted SECURE 2.0 law adds even more juice. Currently, you can catch-up contributions to your regular IRA contributions if you are age 50 or older. The catch-up contribution limit of $1,000, which is set statutorily, is also indexed for inflation under the latest rules. Thus, the maximum catch-up contribution for the 2026 tax year is $1,100 for a total maximum limit of $8,600.

“ As you can see, we’re not talking peanuts anymore. Say that Susan, a 35 year-old employee, contributes $7,500 to a traditional IRA each year for 30 years. For simplicity, we’ll assume a 7% annual return. When Susan nears retirement at age 65, she will have accumulated $758,048 in her traditional IRA without paying a penny of tax!

In comparison, if Susan invests the same amounts in a taxable account earning the same 7% annually, in the 25% tax bracket she would amass $644,341 after 30 years—or $113,707 less. The savings are even greater if Susan steps up her contributions after age 50.

Last call: Although distributions from a traditional IRA are taxable, it’s likely that most earners will be in a lower tax bracket when they begin taking payouts. In other words, you’re still be way ahead of the game. Consider this fundamentally sound approach to retirement savings. If it makes sense for your situation, the sooner you get started, the better.