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Author: Rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77232  
Subject: Re: Simple Investing/Retirement question Date: 4/9/2011 3:37 PM
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What trouble? You keep track of your non-deductible IRA contributions. That strikes me as some fairly basic addition that most third graders are well-equipped to handle....
I've tried to make this as complicated as I could. I still don't see an accounting nightmare. It does require the responsibility to keep track of things from year to year. The IRS even helps out with this as everything you do need to track from year to year is on Form 8606 which is a required part of your tax return any time you make a non-deductible contribution or a withdrawal from an IRA after you made a non-deductible contribution. That's one lousy piece of paper (or two if you don't print on both sides) that you have to keep track of from year to year.

It is an accounting nightmare, despite anybody's fancy handwaving that it isn't.

"Any 3rd grader"?? Right. How about when the 3rd grader is now 30 years later in life, has moved 5 times, born & raised 3 kids, has been laid off & hired a few times, perhaps gotten divorced & remarried, and is now in his 5th year of retirement. Oh, and it has been 20 years since the last time he has needed to file form 8606, and now realised that he probably shouldn't have tossed out all of his ancient tax forms 10 years ago.

All for a trivial benefit.
Consider the case where you've made $5,000 in non-deductible IRA contributions. But now at retirement your total IRA accounts amount to $250,000, and you have an RMD of $9124.

2% of that is non-taxable (5000 / 250000), and 98% is taxable.
Non-taxable amount is $182. Being retired and therefore in the 15% bracket, the tax savings is $27.
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