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Author: forestbin Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Traditional IRA question Date: 4/4/2005 7:41 PM
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This may be a basic IRA question, but I seem can not find the answer right off using google search.

For 2004, both my wife and I can not contribute any amount to Roth IRA. So we are thinking about opening non-deductable traditional IRA. We both do not have such account in the past, but wonder if there will be a problem mixing deductable tradictional IRA with non-deductable traditional IRA in the future? Will non-deductable traditional IRA accept 401K rollover in case we change jobs?

Thanks

Bin
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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78298 of 121585
Subject: Re: Traditional IRA question Date: 4/4/2005 10:29 PM
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forestbin writes (in part):

We both do not have such account in the past, but wonder if there will be a problem mixing deductable tradictional IRA with non-deductable traditional IRA in the future?

I reply:

No problem at all. You can make deductible and non-deductible contributions into the same traditional IRA account. Just remember to report your basis when you fill out your taxes, so that when you eventually start withdrawing the money, you're not taxed a second time on your non-deductible contributions. --Bob

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Author: forestbin Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78305 of 121585
Subject: Re: Traditional IRA question Date: 4/5/2005 1:54 AM
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Thanks for your prompt reply, Bob!

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78339 of 121585
Subject: Re: Traditional IRA question Date: 4/6/2005 2:44 PM
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For 2004, both my wife and I can not contribute any amount to Roth IRA. So we are thinking about opening non-deductable traditional IRA.

Before you do, think about what you plan to invest the $$ in. All taxable withdrawals from IRAs are taxed as ordinary income, regardless of the source of the earnings. With the special treatment afforded long-term capital gains (which aren't taxed until you sell) and dividends, it may be to your advantage to invest through regular taxable investment accounts.

Phil

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Author: forestbin Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78357 of 121585
Subject: Re: Traditional IRA question Date: 4/6/2005 9:48 PM
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Before you do, think about what you plan to invest the $$ in. All taxable withdrawals from IRAs are taxed as ordinary income, regardless of the source of the earnings. With the special treatment afforded long-term capital gains (which aren't taxed until you sell) and dividends, it may be to your advantage to invest through regular taxable investment accounts.

Thanks Phil for your thoughtful reply. I did think about the other options before made decision. IMO, IRA does have some advantages from practical point of view.

Advantage:
1) Tax free growth until retirement. Compare to currently favorable long-term capital gain and dividend treatment but tax law may change over time.
2) Desiganated for long-term purpose. Gain or loss, no need to think short term.

Disadvantage:
1) No advantage of long-term gain over short-term gain, as all taxable withdrawals are treated as ordinary income.
2) Cannot deduct capital loss on tax.
3) Tend to overlook it (from my experience of Roth IRA) and yet another two accounts to manage (for both me and my wife).

To me, the advantages seem to slightly overweight disadvantages. Advantage 2 may not mean much with deciplined investment.

Bin


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