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Author: euphoriant 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 76397  
Subject: Nondeductible IRA Contributions Date: 11/16/2001 9:17 PM
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Facts:
1. Married Filing Jointly AGI >$160,000
2. One non-working spouse
3. One working spouse with a retirement plan at work

Questions:
1. Can both spouses open their own IRAs and contribute $2,000 into each IRA in 2001 even though it will be non-deductible?

2. Is there any reason not to do this?

Thanks,
e
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Author: jtr56 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32570 of 76397
Subject: Re: Nondeductible IRA Contributions Date: 11/16/2001 11:37 PM
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Recommendations: 0
Facts:
1. Married Filing Jointly AGI >$160,000
2. One non-working spouse
3. One working spouse with a retirement plan at work

Questions:
1. Can both spouses open their own IRAs and contribute $2,000 into each IRA in 2001 even though it will be
non-deductible?


Yes.

2. Is there any reason not to do this?

No.

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Author: wisenlucky One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32573 of 76397
Subject: Re: Nondeductible IRA Contributions Date: 11/17/2001 8:24 AM
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2. Is there any reason not to do this?

No.

------------------

Don't forget, though, that earnings withdrawn from a traditional IRA will be taxed at ordinary income tax rates. That means that if you invest in a tax efficient fund, like VFINX or VTSMX, you will convert capital gains growth to ordinary income for tax purposes when you begin to withdraw. You would be better off holding such investments in a taxable account than making nondeductible contributions to a traditional IRA.

On the other hand, high-yield investments like bonds might make sense in a traditional IRA even if the contributions are nondeductible. The return on such investments is primarily ordinary income anyway, and the IRA vehicle allows you to defer that income until it is withdrawn.

You also get the benefit of tax deferral on any transactions within the IRA and that is worth considering. In other words, if you decide to move from one fund to another, there will be no tax consequences inside the IRA. This flexibility can be very useful if you need to rebalance your asset allocation at some point in the future.

The best mix is to have some of your assets in taxable accounts and some in tax deferred vehicles. This allows you the best tax planning and asset allocation flexibility.

WiseNLucky


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