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Subject:  Re: nondeductible IRA - Useless? Date:  12/22/2004  10:34 AM
Author:  2old4bs Number:  43676 of 88074

Am I right in saying that this vehicle is passe' for all intents and purposes as long as it is not deductible and with respect to stock funds? With long term capital gains at 15%, why would I want to pay up to 35% later when I pull the money out?

Hi Jesse,

It appears you're making assumptions based on your individual situation, which could differ from others. You're assuming that your post-retirement tax bracket will be 35%--this will not be true of all other folks. Suppose some folks, like me, believe their post-retirement ordinary income tax rate will be 15%? On the surface this would appear to be a wash/wash scenario with a 15% capital gains rate, but it's not. One has to take into account the value of the tax deferment on the gains--paying 15% now, as opposed to 15% 30 years from now can make a difference--for 30 years one has the availability of the $ to invest and compound that would have gone to pay tax.

In addition, having a TIRA allows me to use it to rebalance my portfolio at any time, without having to keep tax considerations in mind. For example, a fund I purchased within my TIRA on 1/16/04 returned 9% thru 4/16/04. I wanted to lock-in some of that gain and rebalance my portfolio, so I sold a portion of it on 4/16 and invested the proceeds in a REIT. In a taxable account that would have resulted in a short-term capital gain. In addition, the REIT has returned 31% since 4/16--aaah, the value of time use of money!

...I don't see why anyone would put any money into an IRA if they couldn't deduct it at this point

You might not see it, but your assumptions don't apply to everyone.

Naturally, if they change the entire tax system, any assumptions are an exercise in futility anyway ;-)


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