# Can you set up a Traditional IRA with after-tax money? **URL:** \ **Category:** Uncategorized\ **Created:** [March 11, 2021, 8:36pm UTC](https://talk.achievable.me/t/can-you-set-up-a-traditional-ira-with-after-tax-money/454 "2021-03-11T20:36:19Z")\ **Posts on this page:** 2\ **Page:** 1
**Author:** ![A11](https://talk.achievable.me/user_avatar/talk.achievable.me/a11/32/130_2.png) [@A11](https://talk.achievable.me/u/A11)\ **Post date:** [March 11, 2021, 8:36pm UTC](https://talk.achievable.me/t/can-you-set-up-a-traditional-ira-with-after-tax-money/454/1 "2021-03-11T20:36:19Z")
Hi, Brandon, Can anyone set up a traditional IRA (qualified) with after-tax money (say from bank checking/saving accounts), which is non-qualified money? I am not referring that client already has a qualified IRA and want to add more money from bank account. I understand after-tax contribution to a qualified, traditional IRA is allowed as long as the person filed 8606 every year which Uncle Sam knows which portion of the money is qualified and which portion is cost-basis. My understanding is bank account money is already taxed which is after-tax. If client wants an IRA account and use after-tax money to set that up, the type of the IRA should be NON-Qualified and cannot claim tax-deduction. The only benefit is tax-deferred growth. Am I correct? I am not too sure if we can use after-tax money to set up a qualified, traditional IRA (except through employee benefits or SEP IRA). Can you please help clarify this? Thank you. ---
**Author:** ![brandonrith](https://talk.achievable.me/user_avatar/talk.achievable.me/brandonrith/32/29_2.png) [@brandonrith](https://talk.achievable.me/u/brandonrith)\ **Post date:** [March 12, 2021, 11:08pm UTC](https://talk.achievable.me/t/can-you-set-up-a-traditional-ira-with-after-tax-money/454/2 "2021-03-12T23:08:07Z")
Hi @A11! This is a great question, with several layers to make our way through. First, every dollar made to an IRA is technically “after-tax.” For example, a $5,000 contribution to a Traditional IRA would come from after-tax money an investor assumptively made through their job. However, the question is deductibility - can an investor deduct their contribution to reduce their taxable income for the year? Most people with [earned income](https://app.achievable.me/study/finra-series-7/learn/taxes-types-of-income) (a requirement for any IRA contribution) are able to make tax-deductible contributions to Traditional IRAs. However, there are cutoffs for some investors. Let’s place this concept into two categories. **Investors without access to a qualified plan** As you’ve learned in the material (in both the [SIE program](https://app.achievable.me/study/finra-sie/learn/retirement-and-education-plans-fundamentals-qualified-vs-non-qualified) and the [Series 7 program](https://app.achievable.me/study/finra-series-7/learn/retirement-and-education-plans-review)), qualified plans are employer-sponsored retirement plans governed by [ERISA](https://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Act_of_1974). When an investor does not have access to a qualified plan through their work, they generally speaking can deduct 100% of their contributions up to the contribution limit. **Investors with access to a qualified plan** When an investor has access to a qualified plan (e.g. a 401k or 403b), the IRS is a little more stringent with deductibility rules. Contributions can usually be fully deducted as long as income levels don’t exceed these levels: - **Single filer:** $65,000 - **Married filing jointly:** $104,000 If an investor reports income lower than these levels, they may always deduct 100% of their Traditional IRA contributions. Once income exceeds these levels, the deductibility starts going down, eventually getting to a point where no deduction may be made. If you’re interested in the actual numbers and specifics, here’s a [link to the IRS page on this topic](https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work). Investors with higher earned income levels may always contribute to a Traditional IRA, but may not be able to deduct their contributions. If that’s the case, they must file Form 8606 annually to keep track of their “basis” (a.k.a. “after-tax” money in the IRA that was not deductible). As you said in your post, the benefit is the after-tax growth. The basis will never be taxed at distribution, but the growth will be. A few other points - first, Traditional and Roth IRAs are not considered qualified (although lots of financial professionals refer to them as qualified). Qualified means two things - first, the plan is ERISA compliant, and second, the IRS has approved the plan. They are also always workplace plans. [Traditional](https://app.achievable.me/study/finra-sie/learn/retirement-and-education-plans-individual-retirement-accounts-traditional-iras) and [Roth IRAs](https://app.achievable.me/study/finra-sie/learn/retirement-and-education-plans-individual-retirement-accounts-roth-iras) are not subject to ERISA regulations, are not IRS approved, and are not employer-sponsored (investors simply start them on their own). Therefore, they’re not qualified, even though a Traditional IRA works similarly to a 401k (from a tax perspective). [SEP and SIMPLE IRAs](https://app.achievable.me/study/finra-sie/learn/retirement-and-education-plans-workplace-plans-defined-contribution-plans) are ERISA governed and IRS approved, and therefore are qualified plans. Phew - that was a lot! I hope this helps!