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Are there any tax beneficial places to stick some retirement money besides my good old 401k? We can not contribute to any of the IRAs due to income limits.

Dave Kone
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We can not contribute to any of the IRAs due to income limits.

I suggest you re-check the TIRA rules. I believe one can always contribute to a TIRA--the income limit only effects the deductibility of the contribution. The advantage is that the earnings are still tax-deferred until you withdraw them.

I contribute to an IRA every year even though I can't deduct the contribution. I have to keep track of my contributions and file a special form with my tax return indicating what my tax basis is (the total of the contributions). I believe that when you begin withdrawals the percentage of the withdrawal that is taxable is based on the inverse percentage your non-deductible contribution is of the total value.

Another way to defer taxes on earnings is through an annuity, contributions are also not deductible, and annuity costs cut into your earnings much more than a TIRA would.

If you're interested in bonds, you can buy EE or I bonds. The interest is exempt from local income taxes, and federal income tax is not due on the interest until you redeem the bond. From a tax standpoint, particularly if you're in a state that has an income tax, they're more attractive than CDs.

Disclosure: I have all 3: non-deductible TIRA, annuity, and EE and I bonds.

2old

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Are there any tax beneficial places to stick some retirement money besides my good old 401k? We can not contribute to any of the IRAs due to income limits.

With the current long-term capital gains taxes, a taxable account may be a better idea.

rad
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With the current long-term capital gains taxes, a taxable account may be a better idea.

This was my thinking as well, just wanted some other opinions.

Dave Kone
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Greetings Dave,

Savings bonds may be another option if you plan on retiring in less than 30 years since they can accumulate interest tax-deferred for up to 30 years this was one idea that another reply mentioned that I thought was worth re-iterating.

Just another idea,
JB
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Grrr... this computer spontaneously rebooted when I was writing my reply. I already have an appointment to take it in tomorrow for at least a BIOS update (known issue with this motherboard).

We can not contribute to any of the IRAs due to income limits.

I am guessing that this means you earn too much to either contribute to a Roth IRA or to make deductible contributions to a Traditional IRA.

If you aren't already 70.5 years old, if you have "taxable compensation" you should be able to make non-deductible contributions to a Traditional IRA. However, I would recommend that only if you have tax-inefficient assets in your portfolio, such as corporate bonds or REITs. For assets that are reasonably tax efficient, it is better to hold them in a taxable account.

For example, in taxable accounts, try to aim for tax-efficient investments, such as individual stocks, or a stock index fund that tends to have low tax impacts, such as the Vanguard Total Stock Market Fund, a tax-managed mutual fund, or an S&P500 index fund. If you are in a high tax bracket and want to hold more bonds than will fit in your 401(k) and Traditional IRA, United States Savings Bonds (if you are less than 30 years away from retirement) or a municipal bond fund may make sense.

Generally, it is best to view all your retirement investments--the 401(k), taxable investments, and, if you have them, IRAs--as one portfolio. That will give you the flexability to pick and choose where to put different assets to make best use of your retirement accounts to shelter tax-inefficient assets and then use taxable accounts for, hopefully, the most tax-friendly part of your portfolio.

Generally, non-qualified variable annuities (variable annuities that are not in a 401(k), 403(b), IRA, etc.) are a bad idea. A low-cost variable annuity may make sense if you have tax-inefficient assets you wish to hold and there is just no room in the 401(k) or non-deductible IRA. But for stock investments, especially reasonably tax efficient stocks (e.g., stocks that don't pay dividends or, if they do, pay qualified dividends, or stock funds that are reasonably tax friendly), you are likely to do better holding those in taxable investments and paying long-term capital gains rates than in a variable annuity and pay ordinary income taxes on withdrawals.

I hope that makes sense.

It will probably be a couple of days before I get back on--I am about ready to package up this PC to take to the builder of this unit. (He thinks the fix will be relatively easy since the BIOS upgrade fixes the problem of reserved memory overlapping video memory, which may be the source of these spontaneous reboots.)
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Now that I have my computer back, still a little nervous (once bitten, twice shy, but no spontaneous reboot yet), I wish to clarify one point:

It is generally best to maximize one's 401(k) (or evquivalent), Roth IRA, and deductible contributions to a Traditional IRA (whichever combination one qualifies for) before looking at other instruments. So, if one has enough room in the 401(k) for all of one's bond holdings (if any) and also room for some stocks (or stock fund), then hold all the bonds and as much stocks (stock fund) as would fit in the 401(k), and then use taxable for the stocks (or reasonably tax efficient stock funds) for the stock exposure you cannot squeeze into the 401(k).

Vanguard has an article about this, "How to Be a Tax-Savvy Investor", on their web site: http://flagship5.vanguard.com/web/planret/AdvicePTHWTBeATaxSavvyInvestor.html and be sure to check the right side of the page (e.g., on the right side is "Step 2: Put Your Money In The Right Account Types").
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Thanks for everyone!

Mark0Young thanks for the LONG replies.

David Kone
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One tax efficient investment that is outside a tax/retirement wrapper is direct ownership of investment real estate. You can show paper losses while still cash flow positive. You can leverage your investment and then roll it forward without recognizing the taxes on the gain (tax deferral as per section 1031 of the tax code).

I am guessing you are not looking at this option but it appears to fit the request.

John
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We have two rental properties. I was thinking of selling when college money is needed, or who knows maybe keep em!

David
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David,

One option RE provides is the ability to refiance and pull out cash when you need it (up to some limit before there may be taxes due).

John
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