No. of Recommendations: 1
Greetings, Gwlim, and welcome. You asked:

After doing our 2001 taxes, we decided to open a traditional IRA (as I see others have done). We are not qualified for a Roth IRA so that is out. We also cannot deduct the contributions to the IRA.

Do you have recommendations on IRAs? I have seen Vanguard mentioned here quite a bit. Also, do you think opening an IRA is worthwhile to us? Some have indicated that a regular fund would be better.

I'll leave the actual investment to you or to others who may wish to recommend something to you. I will point out, though, that using a long term, buy and hold taxable account invested in the Vanguard S&P 500 or Total Stock Index funds is arguably better than using the identical investment in a nondeductible traditional IRA. That's because under today's tax laws both funds will throw off little in currently taxable dividends in the taxable account, while all gains will ultimately be taxed at a much lower long term capital gains rate than the ordinary income tax rates at which the gains in the IRA will be taxed. That means far more money in your pocket regardless of what tax rate you are in when you redeem those shares in retirement. Therefore, if you believe the lower capital gains rates will persist into the future, then the taxable account will be better for you. OTOH, if you believe that when you finally take those gains only ordinary income tax rates will apply AND you will be in a lower marginal tax rate in retirement, then perhaps the IRA is better.

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