...so he says, switching to a Roth is a no brainer, what with all contributions now non-deductible.Great, I say, but where is the money to be saved/made?See, by changing to a Roth now I'll owe about 19K. By leaving it alone the calculations say its close to a wash at retirement.But the real question is not should I switch but: Do I start the new year by beginning a new Roth or continue contributing my 2K early January in the regular NON-deductible?Let me see if I understand myself: 70K in regular IRA 19K to switch to ROTH 6 years to the Golden Rest Home; 12K total contributions in one only (Jan each year) 18% anticipated CAGR in either choiceI guess I shoud go find some calculator that lets me see the best answer, but I got to be sure of the questions first. Maybe my problem is I"M the no-brainer...
But the real question is not should I switch but: Do I start the new year by beginning a new Roth or continue contributing my 2K early January in the regular NON-deductible?By opening a Roth IRA account and putting next year's money in it, when you make qualified withdrawals from the Roth IRA they will be completely tax free.On the other hand, when you make non-deductable contributions to a Traditional IRA, when you make withdrawals, the part of the withdrawal corresponding to the earnings will be taxed at your ordinary income tax rates at that time.So if you do not qualify for deductable contributions to a Traditional IRA, but you do qualify for contributions to a Roth IRA, the Roth IRA would make more sense than a non-deductable Traditional IRA.This is separate issue from whether or not to convert an existing IRA to a Roth IRA.
In my Investment Study Group we have found that you should;1st. Match employers contributions in your 401k, 403b, 2nd. Fully Fund your Roth(you and your spouse)(2000 each)3rd. Maximize your 401k, 403b, etc contributions4th. Buy growths stocks with posttax dollars that have no or low dividends, so that you pay no taxes until you sell your stocks.Non-deductible IRAs make no sense with Roth IRAs available, Roths grow TAX FREE where Non-deductible grow TAX-DEFERRED. The option for estate plan for Roths are fantastic. You never have to withdraw your money from a Roth or pay taxes when you do withdraw them, but all tax-deferred accounts(401k, 403b, IRAs,etc) require you to start taking distributions at 70 1/2 whether you need the money or not and pay ordinary income taxes. If you don't, you pay a 50% penalty on the money you should've withdrawn. You don't have this problem with Roths, only your heirs have to withdraw the money and they can use their life expectancy to determine this withdrawal while it continues to grow tax free.glenn
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