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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5068  
Subject: Re: Where to put the $$?? Date: 12/27/2003 4:12 PM
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What do the Fools here believe are our next best steps to save for FIRE? Since we contribute the max to the Roth IRA we can't contribute any to a Traditional IRA, right?


IRA contributions are capped at $3K per qualifying person.

However...

YOU are not covered by a pension plan (your husband's pension plan doesn't count, when evaluating your situation). Therefore, IF YOU CHOOSE, you can make YOUR (not your husband's) contributions to a conventional IRA - and deduct them from without regard to income level.

If you are planning on withdrawing signifigant amounts of money from an IRA before age 59 1/2, and you are eligible to make deductible contributions to a conventional IRA, then I suggest you seriously consider doing so in preference to Roth contributions - at least to the point that the conventional IRA will cover all such anticipated withdrawals.

Why? Because a Roth IRA gives up the tax deduction on the contributions, in exchange for a tax exemption on the withdrawals - but that tax exemption does not apply to early withdrawals (once they go past the sum of contributions). In other words, if you expect to do early withdrawals you're giving up the tax deduction in exchange for nothing. Contribute to a conventional IRA instead, and you can use the tax savings to fund a second, un-sheltered account.
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