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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75835  
Subject: Nondeductible IRA or taxable account ? Date: 12/21/2005 1:05 PM
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Due to my current high ($130k) salary, and having the single tax filing status (I can't marry my domestic partner under federal or California law :-( !), I am not eligible for making any deductible IRA contributions, or making any Roth IRA contributions. My only possible choice of IRA is a non-deductible IRA .

My question is, is it worth it to open such an account ? Back a few years ago when the contribution limit was a lowly $2000, I didn't think so. Now that it is being raised to $4000 for 2005 and $5000 for 2006, I'm reconsidering it. What do others think ? Does it make sense, or should I instead invest in a taxable account which has more flexibiliy / liquidity ?
Or should I split whatever I have left into both the nondeductible IRA and a taxable account ?

My only current savings for retirement is my 401k, to which I have been contributing since I started working in early 1996. But it has had very subpar returns. I have a balance of about $140k, but $86k is from personal contributions, $24k from company match . As you can see there is only $30k of earnings over that 10 year period. If I had gotten the average 10.5% stock market return every year, I would have $174k in my account by now. But I got clobbered in the dotcom days at the time my contribution amounts started becoming significant - I had years where my balance actually declined, and I couldn't make the max contributions due to being an HCE. Now I have a new employer and better 401k plan so I can contribute the max, fortunately, which should be $15k personal + $5k match for next year. Currently, I have 30% in a foreign stock fund, 60% in 3 domestic funds, and 10% in bonds. I have always had between 60 and 80% in stock funds, and I increased that to 90 a year ago given the past poor returns.

I haven't been able to save much up to this point other than this 401k account, my home equity and a $20k emergency fund. My only debt is my mortgage ($160k and 13 years left on a 15 year at 5.125%), but after the $40k of annual taxes, I spend nearly all I get, as my partner does not work, and I live in a very expensive area (Silicon valley). I'm trying to change that and live a bit below my means now so I can invest more than the 401k, but it is really quite hard.

I am only 29 so I still have a lot of time till retirement - according to the social security I have to wait till 2043 for full benefits, if any - that would mean that I would have worked for 47 years - and I know I won't remain a sharp programmer for another 37 years ;) So I'd like to make sure the 401k that barely beats inflation isn't the only thing working for me ...
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