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<< a clarification: my husband and I currently contribute the maximum allowed by law to our respective 401(k)/403(b) plans and our profit-sharing/retirement plans. From what I understand (which is admittedly not a lot), this, combined with the aforementioned AGI, makes us ineligible for the deduction if we recharacterized our Roth IRA contributions as contributions to a traditional IRA. and if there is no deduction, is there any point to having an IRA at all, as opposed to just adding the money to our stock account?

Also, does anyone know what the penalties and taxes on the earnings would be if we withdrew all of the funds from our fledgling Roths? >>

Thanks for the clarification. You definitely do not qualify for deductible IRA contributions.

I think there's a good point to having traditional IRAs with nondeductible contributions. The earnings grow tax-free until you start disbursements, giving you more to work with. The drawback is that all taxable money coming out of a traditional IRA is ordinary income, so if all you're going to do is buy and hold, you might be better off with a taxable account. If you have investments that generate a lot of current income, though, it can make good sense to keep them in a traditional IRA even if you can't deduct the contributions.

If you just close out the Roths you will pay tax at your marginal rate and a 10% penalty. Both the tax and penalty apply only to any gains, not to your contributions.

Phil Marti
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