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URL:  http://boards.fool.com/forgive-me-done-i-thought-the-name-of-this-26178388.aspx

Subject:  Re: IRA understanding Date:  12/10/2007  3:32 PM
Author:  TMFPMarti Number:  97158 of 121592

Forgive me.

Done.

I thought the name of this board was Tax Strategies, not Tax Strategies Before Retirement. I didn't know there was an age beyond which a person has no right to try (within the rules) to save money on taxes. (I was given a disability retirement from the fire department in 2001 at age 50; not a typical retirement age).

One of the problems with moving directly into snit mode is that you stop paying attention to what's being said and race off reading all sorts of things into it that aren't being said. I in no way even implied that you have no right to try, within the rules, to save money on taxes. I even told you the one way you can try to do it in your given scenario.

I mentioned the Roth because I had opened one a few months ago and then realized I had failed to read closely enough the IRS rules for contributions that said I was ineligible. I immediately called and closed the account. I probably could have gotten away with keeping it and the chances are slim I would have been caught but it wasn't right to keep it active.

The chances are 100% that you'd be caught. IRA custodians are required to report all contributions to the IRS, which matches them against returns. If IRS sees an IRA contribution with no corresponding "taxable compensation," it almost jumps out of the computer as an excess contribution.

BTW, don't blame IRS for the laws Congress writes. ("...should be good enough for IRS," etc.) It's really not their fault.

But I guess now I need to stop contributing to my traditional IRA's and cash them in so I won't get "yet another tax benefit".

This is a prime example of what I was talking about regarding snit mode. It's your money, do with it as you wish. But I think shooting yourself in the financial (and tax) foot to achieve some weird sense of "I showed him" would be downright lower-case foolish.

According to you I need to keep all my incoming cash close at hand and not let it work for me.

Huh? I think it's terrific if you have more cash in than needs to go out, and I think it's terrific that you want to invest it rather than blow it on Twinkies. All I said was that you can't do it in a retirement account.

We talk all the time around here about Foolish ways to invest in regular taxable investment accounts while minimizing the tax hit.

Since you retired I can only assume that you refuse to take advantage of any legal option to pay less tax.

You assume incorrectly. I squeeze every nickel of deductions until the buffalo screams. (I have lots of time on my hands.)

Having said all that you have every right to disagree with me.

We occasionally discuss tax policy around here, but there was an additional reason for my comments.

As I mentioned, if you want to get the law changed, you need to let your legislators know. They really love hearing from constituents, especially in election years, and they love to introduce tax bills. You never know what well-pitched idea may catch some staffer's eye.

In any debate it's a good idea to anticipate arguments against your position. When you're pitching an idea if you can anticipate them and take a shot at neutralizing them, even better. It's also a good idea to work from facts as they are, not as you wish they were. The rationale I gave you for the creation of IRAs is fact.

So let's look at your situation. As you note, you retired early, and on top of that, on disability from a first responder public safety career. Not an unsympathetic platform from which to speak. You might want to point out that although IRAs were intended for people in their working years, yours were cut short. If you somehow manage to scrimp and save some extra cash each month, why shouldn't you be allowed to add to your retirement savings, at least until you reach normal retirement age?

Heck, it's an argument I'd even listen to.

Phil
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