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Author: bossgobbler Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: traditional IRA Date: 7/19/2000 1:51 PM
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I am planning on waiting until 59 1/2 so that I can withdraw money from my IRA penalty free. I also plan on being retired at this time, so I should not have to pay income tax. Considering that my income tax rate would be 0% since I am not generating any income, shouldn't I contribute to a traditional IRA rather than a Roth IRA. I figure if I have no income, then my tax burden will be exactly the same with a traditional as a Roth. Also, the tax benefits I will get every year from my traditional IRA while I am still working, I can reinvest. The total return from my traditional IRA + my reinvested tax return every year should beat what I would have had in a Roth. Is this correct?
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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23489 of 75335
Subject: Re: traditional IRA Date: 7/19/2000 2:35 PM
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I am planning on waiting until 59 1/2 so that I can withdraw money from my IRA penalty free. I also plan on being retired at this time, so I should not have to pay income tax. Considering that my income tax rate would be 0% since I am not generating any income, shouldn't I contribute to a traditional IRA rather than a Roth IRA.

I think you're confused about the taxation of IRA distributions. Except for the return of previously-taxed nondeductible contributions, every penny distributed from a traditional IRA is taxed as ordinary income. Unless your total taxable income in retirement is going to be zero, you will be paying income tax on at least some of the distributions.

You can get more information in All About IRAs, accessible through the QuickFind dropdown menu at the upper right of this screen.

TMF ExRO
Phil Marti

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Author: bossgobbler Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23490 of 75335
Subject: Re: traditional IRA Date: 7/19/2000 2:58 PM
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OK, thanks for the clarification. So, for example, if during retirement I am not working and I am pulling 40,000 dollars a year out of my previously deductible traditional IRA, then I will be taxed on that 40,000 at the current income tax rate for that tax bracket.

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 23494 of 75335
Subject: Re: traditional IRA Date: 7/19/2000 7:12 PM
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So, for example, if during retirement I am not working and I am pulling 40,000 dollars a year out of my previously deductible traditional IRA, then I will be taxed on that 40,000 at the current income tax rate for that tax bracket.

Basically correct, although you wouldn't be taxed on the whole $40,000, because of deductions and exemptions. Also, your income may fall into more than one bracket so you pay x% on some and y% on some. The Tax Rate Schedules in the 1040 instructions show you how the brackets work.

TMF ExRO
Phil Marti

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