Should I Have Separate Accounts for My Deductible and Nondeductible IRA Contributions?
While it is not required to hold separate IRAs for deductible and nondeductible contributions, many financial experts recommend that you do so. The chief reason? Tax planning.
What to do?
If you “commingle” your funds — that is, create one account that has a mix of tax-deductible and non-tax-deductible contributions — it could get tricky for you when it comes time to withdraw those assets or roll them over into a different type of account (such as a Roth IRA).* You’ll have to keep good records handy to determine what amount was tax deductible — or spend a lot of time hunting for old account statements or tax returns. Those tax-deductible contributions, and any earnings, are taxed as ordinary income.
Keep in mind that your eligibility for a full or partial deduction depends on whether you (or your spouse, if applicable) participate in an employer-sponsored retirement plan. If you do, the income limits for a full deduction are $61,000 for single filers and $98,000 for joint filers for 2015.
*Distributions prior to age 59½ may be subject to a 10% additional federal tax.
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