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Subject:  Do you make non-deductible IRA contributions? Date:  12/27/2000  10:23 PM
Author:  tmorrow Number:  43524 of 120807

I'm in a high-AGI situation this year, and I can't make any contributions to a Roth IRA, and can only make non-deductible IRA contributions. It's not clear that it's worthwhile to do so; It seems to me that I could get the same tax-free compounding with a regular taxable investment by just buying it and holding it until I'm ready to retire, and pay less taxes to boot. Let me explain.

The advantages of the non-deductible IRA contributions are:
- I can switch the money around within the IRA at will without incurring taxes until retirement.
- I only pay taxes on the gain (not principal), but at ordinary tax rates.
- I don't have to worry about distributions from the equities I invest in; they compound tax-free.


The advantages of forgoing the IRA and just buying and holding lets say Berkshire Hathaway stock are:
- I only pay taxes on the gain, at capital gains rates.
- I have freedom to take distributions whenever I want without paying a 10% penalty.

I can buy and hold a stock with little or no distributions (like Berkshire Hathaway) for 30 years until retirement, and that seems to be the Foolish thing to do. I can thumb my nose at all the rules and regulations of the IRA. I will end up paying lower taxes at the end because they will be CG rates rather than ordinary income, and I will have the flexibility to retire on whatever schedule I want. Of course I'll miss out on the opporunity to spend countless hours worrying about where I should move my funds within the IRA.

If there is anyone making non-deductible IRA contributions, please enlighten me if I've missed your reasons for doing so.

-Tom
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