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So I'm pass the income threshold to contribute to a ROTH IRA, but I understand I can always contribute to an IRA up to the limits...

but my question is... since I can't deduct the contribution... doesn't it mean that I will be double taxed on the principle? It seems like when you take money from IRA after 65, everything is counted as income. So if I put in $5,000, when I take that money out, I have to pay taxes on that again? Am I being double taxed?

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Yes, you can make a "non-deductible" Traditional IRA contribution. You must report non-deductible Traditional IRA contributions on Form 8606 part I for the year the contribution counts under.

The after-tax principal amount (the "basis") will not be taxed upon withdrawal; only the earnings (which are always pre-tax in Traditional IRA, even if it grew from after-tax funds) and deductible contributions will be taxed upon withdrawal. (Note that a withdrawal from Traditional IRA will generally consist of pre-tax and after-tax amounts in equal proportion to the pre-tax and after-tax amounts in the Traditional IRA overall, due to the pro-rata rule.) You will calculate the taxable part of a distribution from Traditional IRA in Form 8606 part I in the year you withdraw.

Assuming you did not have any previous money in pre-tax IRAs, one thing you can do is a "back-door Roth IRA contribution" -- after you make your non-deductible contribution, immediately convert the amount to Roth IRA (this also does not have income limits). The end result (again, assuming you did not have any previous money in pre-tax IRAs, so you don't have issues with the pro-rata rule) is the same as a regular Roth IRA contribution, which is better than a non-deductible Traditional IRA contribution because the earnings are after-tax too.

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    The last paragraph needs to emphasize the first clause of the first sentence. Money taken out of the IRA to do the backdoor Roth conversion is also subject to the pro rata rule, and for the purposes of the pro rata rule, all the Traditional IRA accounts, no matter where they are invested or who the custodian is, are considered to be just one IRA. So, taking out the money just invested in a newly established Traditional IRA account to do a backdoor Roth conversion does not work if there are other Traditional IRA accounts lying around. – Dilip Sarwate Dec 18 '17 at 15:35

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