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I would tend to agree with the other reply about tax-efficient investments (such as a major stock index fund) would probably be better held in a regular (taxable) account--the withdrawals of gains of a non-deductable traditional IRA would be taxed at your ordinary income tax rates, whereas selling stocks or tax-efficient mutual funds that you have held for the long run would be taxed at long-term (or the newer very long term) capital gains rates, which are (under present law) at a lower rate than ordinary income tax rates.

If you have an asset allocation plan that calls for some tax-inefficient investments (such as bonds, a bond fund, or a REIT), it would generally be better to hold that tax-inefficient investment in a "tax favored" account (even a non-deductable Traditional IRA) so that the gains thrown off each year from such investments wouldn't be taxed each year but rather be allowed to grow until you make your withdrawals.

There are other advantages of IRAs that may go beyond just the federal tax laws:

1. Depending on the state laws, funds in an IRA might or might not be protected from creditors.

2. Likewise, money in retirement accounts may be treated differently for figuring financial aid than money in regular accounts. Be sure to look into this if you or your children plan on applying for financial aid--my imperfect knowledge of this is rather dated.

3. If you practice Asset Allocation With Periodic Rebalancing, rebalancing (selling some of one asset to buy more of another asset) would have taxable consequences in a regular (taxable) account, but no tax consequences in a "tax favored" account (such as an IRA). Or if you are an active trader, same story.
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