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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Re: does your income level affect IRA contributi Date: 1/15/2005 6:47 PM
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Since withdrawals of gains from the IRA would be taxed as ordinary income while both long term capital gains and qualified dividends are taxed at a lower rate, why would there be any advantage in putting money into an after-tax IRA?

If one's investment plan calls for some tax-inefficient investments, such as bonds or REITS, if there is room, it is best to hold them in a "tax favored" account of some sort, even a Traditional IRA funded with non-deductible contributions so the interest or non-preferred dividends could be reinvested and thus allowed to grow tax deferred.

In years when one makes non-deductible contributions to a Traditional IRA, one should also file IRS Form 8606 with one's federal tax returns for that year to preserve one's "tax basis" (after-tax contributions) so that, when one makes withdrawals, income taxes would be on the part of the withdrawal not represented by return of after-tax contributions.
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