"For Roth IRAs, contributions are not tax deductible but qualified distributions are tax free."

What does it mean by "contributions are not tax deductible"?

The Roth IRA contribution do NOT reduce you tax liablility in the year you make the contribution. However, since you already paid taxes on the money that you put in, you do NOT pay taxes when you take it out. This is the exact OPPOSITE of a normal IRA.

There are two types of contributory retirement accounts - those where contributions are tax deductible and those where the contributions are not tax deductible. A Roth is one of those accounts where you do not get the tax deduction for making a contribution. The flipside is that after you retire and start taking withdrawals, the money taken from your Roth is taken out tax free while the withdrawals from the accounts (like IRAs or 401(k)s) where the contributions are tax deductible require you to pay income tax on the withdrawals. Thus, the question you have to ask yourself is whether you pay taxes before or after you retire on that money.

You cannot count it as a deduction on your taxes at the end of the year when you file. Roth IRA's are different kinds of investments as you have already paid taxes on the dollars you have put into these accounts. So when you pay money during the year into those accounts the entry made during tax season means you cannot deduct it as a cost incurred during the year as it is a elective savings program. Tax has been paid already. When the distributions happen you don't have to pay tax on them. It's kind of like a savings account you can only touch once you are 59 1/2 years or you buy a house.

Mike,

Click on the link below for an explanation.

Hope it helps. God bless.

"For Roth IRAs, contributions are not tax deductible but qualified distributions are tax free."

What does it mean by "contributions are not tax deductible"?