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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Re: Non-deduct Traditional IRA Date: 2/10/2004 6:44 PM
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If you don't qualify for a Roth IRA, is there a good reason to use a non-deductible traditional IRA over a taxable investment account? I know the earnings are tax-defered in the IRA but you have to pay income tax at withdrawl versus capital gains with the investment account?

Welcome to the (wish I could have a Roth) club! There are a few questions you have to answer: How long will your incremental tax rate be much higher than the capital gain tax rate? Also, what will your incremental tax rate be during retirement? If your incremental tax rate will be much lower during retirement, then a non-deductible contribution to an IRA might be the way to go, particularly if you have some time to go before retirement (> 15 years). If your rates might be similar both pre and post retirement, or even higher during retirement then a taxable account would be the way to go. Over the next few years you will benefit from the lower cap gains rate, but in order to do so you must be disciplined and use a "long term buy and hold" strategy.

As another posted pointed out, your portfolio allocation has to also be taken into account, as a tax-deferred account is a good place to hold REITs and other investments that throw off income NOT subject to the new low cap-gains rates.

2old
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