No. of Recommendations: 2
What the thoughts on investing in a traditional IRA when the contribution doesn't qualify for a tax deduction? [and one doesn't qualify for a Roth IRA]

I would be inclined to go with personal (taxable) accounts of equities that could be held for a long time. Since I am not a stock picker, I would probably suggest something like the Vanguard Total Stock Market Fund. Vanguard also has tax managed funds if I recall correctly.

However, if your investment plan involves holding some tax inefficient assets, such as REITs (or a REIT index) or bonds (other than municipal bonds) or even a managed fund with a fairly high turnover, holding such investments inside a non-deductible Traditional IRA would be better than holding them in a personal (taxable) account.

There are tradeoffs between a non-deductible Traditional IRA and a personal (taxable) account:

Non-deductible Traditional IRA:

- Allows tax-inefficient assets to grow without year-to-year tax obligations, thus allowing all of that money to "compound" until it is eventually withdrawn.
- Allows one to move monies between investments without any tax issues.
- At a later date there may be a possibility of converting the non-deductible Traditional IRA to Roth (e.g., if one's AGI is $100,000 or less and filing status is not married, filing separately).
- In a number of states, assets in a Traditional IRA have certain protections from creditors. However, the protection varies between states. If you or your spouse has an occupation that tends to attract lawsuits, you might check your state laws or consult an attorney that practices in your state.

Personal (taxable) account:

- Allows one to take money out at any time, for any reason, without any 10% penalty.
- If held for over 1 year and sold at a gain, the amount of the gain is generally taxed at a lower long-term capital gains rate, so the tax impact when one does sell would be less than if one had to pay ordinary income taxes on the gains removed from a non-deductible Traditonal IRA.
- There is no requirement that one takes Minimum Required Distributions starting when one turns 70.5 years old.
- Heirs will get a "stepped up basis".

So, as you can see, there are multiple reasons why one might want to go one way vs. the other. None of us here in TMF land know your situaiton or your priorities like you do, nor do we know your investment style.
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