No. of Recommendations: 5
2. Is there any reason not to do this?



Don't forget, though, that earnings withdrawn from a traditional IRA will be taxed at ordinary income tax rates. That means that if you invest in a tax efficient fund, like VFINX or VTSMX, you will convert capital gains growth to ordinary income for tax purposes when you begin to withdraw. You would be better off holding such investments in a taxable account than making nondeductible contributions to a traditional IRA.

On the other hand, high-yield investments like bonds might make sense in a traditional IRA even if the contributions are nondeductible. The return on such investments is primarily ordinary income anyway, and the IRA vehicle allows you to defer that income until it is withdrawn.

You also get the benefit of tax deferral on any transactions within the IRA and that is worth considering. In other words, if you decide to move from one fund to another, there will be no tax consequences inside the IRA. This flexibility can be very useful if you need to rebalance your asset allocation at some point in the future.

The best mix is to have some of your assets in taxable accounts and some in tax deferred vehicles. This allows you the best tax planning and asset allocation flexibility.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
Live Video Event Monday!
The GP team is hosting a live video event on Monday at 4 p.m. ET. Don't worry if you can't make it — we'll have a replay and a transcript. Click for more!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.