Can You Make a Nondeductible IRA Contribution? Rules for High-Income Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Yes. Anyone with earned income can make a nondeductible contribution to a traditional IRA, and there is no income limit on doing so. For 2026 the cap is $7,500 per person ($8,600 if you are 50 or older), and you report the contribution on IRS Form 8606 so the after-tax money is not taxed a second time when it comes out.

For a two-earner household in California or Washington making $750,000 or more, a nondeductible contribution is usually the only kind of traditional IRA contribution available. The real question is not whether you can make one. It is what you do with it next, and whether an old rollover IRA quietly turns a tax-free move into a taxable one.

Why high-income W-2 families end up with nondeductible IRA contributions

A traditional IRA contribution is deductible only if your income is low enough. For 2026, if you are covered by a workplace plan such as a 401(k) or 403(b), the deduction phases out for married couples filing jointly between $129,000 and $149,000 of modified adjusted gross income. If only your spouse is covered, the range is $242,000 to $252,000 (IRS Notice 2025-67). A physician couple, a Genentech scientist married to an Apple engineer, or an Amazon director with a working spouse is far above both ranges.

Direct Roth IRA contributions are also closed. For 2026, the Roth IRA phase-out for joint filers runs from $242,000 to $252,000 of MAGI. Above that, you cannot contribute to a Roth directly.

What remains open is the nondeductible traditional IRA. The contribution goes in with money you have already paid tax on. That after-tax amount becomes your “basis” in the IRA, and the IRS needs a record of it.

Deductible vs nondeductible IRA contributions, side by side

The limit is a combined limit. If you put $7,500 into a traditional IRA for 2026, you have no room left for a Roth IRA contribution that year, and the reverse is also true. A non-working spouse can still contribute based on the working spouse’s pay when you file jointly (IRS Publication 590-A).

Are nondeductible IRA contributions taxable when you withdraw them?

The contribution itself is not taxed again. The earnings are. The catch is that you cannot choose to take out only the after-tax part. The IRS treats every dollar you withdraw or convert as a mix of basis and pre-tax money, based on the ratio across all of your traditional, SEP and SIMPLE IRAs combined, using their total value on December 31 of the year of the withdrawal (Form 8606 instructions, IRS Publication 590-B). This is the pro-rata rule.

Three things follow from it:

• A separate IRA holding only your nondeductible money does not help. The IRS adds all your IRAs together.
• The December 31 balance counts, not the balance on the day you convert. Money that lands in a traditional IRA later in the year (an old 401(k) rolled over in November, for example) changes the math for a conversion done in February.
• Each spouse is measured separately. Your spouse’s rollover IRA does not affect your ratio.

Can you withdraw nondeductible IRA contributions early? You can, but before age 59½ the taxable share of the withdrawal is generally subject to the 10% additional tax as well as income tax. The basis portion is not (Publication 590-B).

Worked example: a $950,000 Bay Area household with an old rollover IRA

Assumptions (illustrative): married, filing jointly, living in San Jose. Combined W-2 income of about $1.05 million; after 401(k) deferrals and deductions, taxable income of about $950,000 for both federal and California purposes. Both spouses are covered by 401(k) plans. Spouse A has a $200,000 pre-tax rollover IRA from a former employer. Spouse B has no IRA. No investment growth in the IRAs during the year, to keep the arithmetic clean.

In February 2026, each spouse contributes $7,500 nondeductible to a traditional IRA and converts it to a Roth IRA a few weeks later (the “backdoor Roth”).

Spouse B: clean conversion

Basis is $7,500. Total traditional IRA value on December 31 is $0, plus the $7,500 converted. Nontaxable share: $7,500 / $7,500 = 100%. Tax owed on the conversion: $0 (any small growth before conversion would be taxable).

Spouse A: the pro-rata trap

Basis is $7,500. The ratio uses the December 31 value plus the amount converted: $200,000 + $7,500 = $207,500.

• Nontaxable share: $7,500 / $207,500 = 3.61%, or about $271 of the conversion.
• Taxable share: about $7,229.
• Marginal rates at this income: 37% federal (the 2026 joint 37% bracket starts at $768,700 of taxable income, Rev. Proc. 2025-32) plus 11.3% California (2025 joint bracket $891,542 to $1,485,906, the latest FTB schedule published). Combined: 48.3%.
• Extra tax: about $7,229 x 48.3% = $3,492, for a move that was meant to be tax-free.
• The remaining $7,229 of basis stays in Spouse A’s IRA, tracked on Form 8606, to be recovered pro rata on future withdrawals.

The fix the family considers

Workplace plans such as 401(k)s may accept roll-ins of pre-tax IRA money, though they are not required to. If Spouse A moves the $200,000 into the current employer’s 401(k) before December 31, 2026, the year-end IRA balance is $0 and the conversion becomes nontaxable again. Only pre-tax money can roll into a workplace plan; after-tax basis cannot (Publication 590-A). Whether this works depends on the plan’s rules and its investment menu and fees, which is worth checking before the contribution, not after.

Is a nondeductible IRA worth it if you never convert?

For this reader, usually not on its own. Growth inside a nondeductible IRA is taxed as ordinary income when withdrawn, at up to 37% federally for 2026. The same investments in a brokerage account would typically be taxed at long-term capital gains rates of 20% federally for 2026 at this income (plus the 3.8% Net Investment Income Tax above $250,000 of MAGI for joint filers). The trade is tax deferral against a higher rate later, plus Form 8606 paperwork for decades.

The value of the nondeductible contribution comes from what it makes possible: a Roth conversion that grows tax-free and has no required minimum distributions for the owner. For a family with children under 12, that is $15,000 a year for a couple, every year, moving into accounts that can compound for 30 years or more.

How this plays out in California versus Washington

California. The state follows the federal treatment: basis comes out tax-free and the rest is taxed as ordinary income. California has no lower rate for capital gains, so the federal “brokerage vs IRA” rate gap is smaller at the state level. A pro-rata mistake costs state tax at your top bracket (up to 13.3% including the 1% Behavioral Health Services Tax over $1 million of taxable income, 2025 schedule).

Washington. Today there is no state tax on a conversion or IRA withdrawal, and retirement accounts are exempt from Washington’s capital gains tax (WA Department of Revenue). That changes for some households in 2028: Washington’s new 9.9% income tax applies to AGI over $1,000,000 from January 1, 2028 (WA DOR). How it will treat Roth conversions is pending state guidance, which is one reason some Seattle families with large pre-tax IRA balances look at the timing of conversions before 2028.

Form 8606: what to file and when

1. Contribute by the deadline. Contributions for 2026 can be made through the April 2027 filing due date, not including extensions (Form 8606 instructions).
2. File Form 8606 for each spouse for every year you make a nondeductible contribution, take a distribution while you have basis, or convert to a Roth. Each spouse files their own.
3. Know the penalties. Failing to file a required Form 8606 carries a $50 penalty, and overstating nondeductible contributions carries a $100 penalty, unless you show reasonable cause. The larger cost is losing track of basis and paying tax twice.
4. Keep the forms forever. Your basis may matter 30 years from now. Keep every year’s Form 8606, the year-end IRA statements, and the Form 1099-R and 5498 for each conversion.

Common mistakes we see in high-income households

• Forgetting Form 8606, so the IRS (and your future tax preparer) assumes your basis is zero.
• Rolling an old 401(k) into an IRA late in the year after a backdoor conversion, which pulls that balance into the December 31 ratio.
• Assuming a separate “after-tax only” IRA is exempt from the pro-rata rule.
• Expecting to undo a conversion. Roth conversions made after 2017 cannot be recharacterized (Form 8606 instructions).
• Contributing over the $7,500 limit across IRAs. Excess contributions face a 6% excise tax for each year they stay in the account (Publication 590-A).

For couples who also have access to after-tax 401(k) contributions, the larger opportunity is often the mega backdoor Roth, which can add far more than $7,500 a year. The pro-rata rule for the mega backdoor works differently from the IRA version, and our backdoor Roth walkthrough covers the conversion step by step.

What to write down for your kids

Basis is invisible on a brokerage statement. If you die with $150,000 of after-tax basis spread across IRAs, your children inherit a tax record they may never find, and can end up paying tax on money you already paid tax on. One page in your family’s records listing each spouse’s IRA basis, the year of each conversion, and why you chose Roth over taxable investing gives an heir or a trustee what they need. It also shows your children how you reasoned through a decision that a lot of high earners make on autopilot. That is the kind of note the FamilyKnowledge® System is built to hold. Conversations fade. Documentation compounds.

Frequently asked questions

Can I make a nondeductible IRA contribution if I have a 401(k)?

Yes. Being covered by a 401(k) affects only whether a traditional IRA contribution is deductible, not whether you can make one. For 2026 you can contribute up to $7,500 ($8,600 at 50+) as long as you have at least that much earned income, or your spouse does if you file jointly. You report it as nondeductible on Form 8606.

How are nondeductible IRA distributions taxed?

Each distribution is split between tax-free basis and taxable pre-tax money, using the ratio of your total basis to the combined value of all your traditional, SEP and SIMPLE IRAs at year end plus that year’s distributions and conversions. The taxable part is ordinary income, and before 59½ it may also face the 10% additional tax. Form 8606 does the calculation.

What if I forgot to file Form 8606 in past years?

The missing basis can usually still be documented by filing Form 8606 for each year it was required; a tax preparer can confirm whether an amended return is also needed. The IRS penalty for not filing is $50 unless you show reasonable cause, which is small next to paying tax twice on the same dollars. Gather the IRA statements and Form 5498s for those years first, so the amounts match what the custodian reported.

Next step

Before you make your 2026 contribution, pull each spouse’s December 31, 2025 IRA statements and confirm whether any pre-tax IRA balance exists. If one does, decide whether to roll it into a workplace plan first. If you would like a second set of eyes on your backdoor Roth, equity compensation and withholding together, our tax management and retirement and employee benefits work starts with a Tax & Wealth Assessment.

This is general education, not individual tax advice. The right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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