Martha is a W-2 employee, lives in the U.S., and works for a company that doesn't offer a 401(k).

She is maxing out her traditional IRA every year 2010-2019 but she is not qualified to take any deduction since her income exceeds the limit permitting such deduction. Years go by and her savings grew due to her contributions and due to natural market growth.

She has two questions:

  1. How does she keep track of the portion of the funds that she contributed from her pay checks after taxes from the portion that grew beyond her contributions due to the market growth over the years?
  2. Are there any other investment vehicles available to her to save for a retirement beyond ~$6k/year Traditional IRA? (She is not self-employed, her employer doesn't have 401(k), she is not qualified for Roth IRA, and doesn't want to switch employers.)
  • The brokerage should have records of her contributions.
    – RonJohn
    Sep 9, 2019 at 20:27
  • what retirement plan do they have at work? Sep 9, 2019 at 21:11
  • they have no retirement plans
    – AstroSharp
    Sep 9, 2019 at 22:46
  • 1
    Does she have a spouse with a 401(k)? What tax bracket is she in? Has she researched Roth conversions? Does she have other financial goals? Sep 9, 2019 at 23:27
  • 1
    She can of course just save and invest in normal, non-tax advantaged mutual funds or other investments. She can put as much of her excess income into those as she likes.
    – jamesqf
    Sep 10, 2019 at 2:41

2 Answers 2


Based on the key parts of the question:

  • A. Martha doesn't have a retirement plan at work.
  • B. Martha makes too much to deduct the traditional IRA contribution
  • C. Martha makes too much money to participate in a Roth IRA.

From these three statements we know:

From A we know Martha has no 401(k) or 401(k) like retirement plan at work, she also doesn't have a pension plan.

According to the IRS

You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:

  • Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year;

  • IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year; or

  • Defined benefit plan (pension plan that pays a retirement benefit spelled out in the plan) and you are eligible to participate for the plan year ending with or within the tax year.

Box 13 on the Form W-2 you receive from your employer should contain a check in the “Retirement plan” box if you are covered. If you are still not certain, check with your (or your spouse’s) employer.

But from B we know that Martha makes too much money to deduct the IRA contribution, but that implies that Martha's spouse has a retirement plan.

According to the IRS in regards to can a person deduct their IRA contribution in 2019.

  • If they are single and they aren't covered by a Retirement plan then they can take a full deduction up to the amount of their contribution limit.
  • If they are Married then two things are important. Is their spouse covered by a retirement plan and are they filing single or head of household.

    • MFJ or MFS and Spouse isn't covered then they can take a full deduction up to the amount of their contribution limit.
    • MFJ with a spouse who is covered by a plan at work if they have a Modified AGI less than 193K then they can take a full deduction up to the amount of their contribution limit. There is a partial deduction between 193K and 203 K and no deduction above 203K
    • MFS with a spouse who is covered by a plan at work severely limits the ability to deduct a contribution. Have a MAGI below 10K then there is a partial deduction but above 10K there is no deduction.

From C we know Martha can't make a Roth contribution.

Again from the IRS regarding Roth contributions. Martha is either single and has to have an MAGI above 137K, or MFJ and they have a MAGI above 203K or MFS and have a more complex situation.

Going forward Martha has several options.

  • If Martha wants to participate in a Roth IRA then Martha should look at the back door Roth, it won't make the contribution deductible but It will allow the future growth to be tax free.
  • If Martha's spouse has a 401(K) plan make sure those contributions are maximized
  • If Martha or her spouse has a high deductible health plan and access to a HSA they can make the maximum contributions to the HSA but then not spend the money in the plan. Many HSA plans allow you to invest in options similar to a 401K and once you reach retirement age the penalty for non-medical use disappears
  • If Martha or her spouse have a child they can contribute money to a 529 plan. That isn't deductible on the federal tax forms, but the growth is tax free if used for qualified expenses. It also may save money on state taxes.
  1. She should have been including Form 8606 each year on which she would have reported the total nondeductible contributions she made that year and added that amount to the total of all the nondeductible contributions (called the basis) made thus far. That is, Form 8606 would have needed the basis as of last year (from the previous year's Form 8606), would report this year's nondeductible contributions, and add them to last year's basis to come up with a basis for the current year. When taking a distribution from the IRA, another Form 8606 would be required since the distribution would in part be from the basis (nontaxable income) and in part from the growth within the IRA (taxable income).
  2. There are no tax-deferred or tax-free investment vehicles to save for retirement other than IRAs, 401(k) plans or 403(b) plans, 457 plans for state employees etc. None of the latter are available to the OP.

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