No. of Recommendations: 0
<<I certainly hope you asked KAT in Chicagoland for permission before lifting his copyrighted material and posting it here. As a lawyer, he may not take kindly to such pilferage even if I agree with it. If he sues, you get the bill. <g>>>

Of course I'm pleased to have a limited quote posted here with proper attribution. And I wouldn't think of suing a person who wears a jester's cap.

On the main topic, my own experimentation with spreadsheet projections indicates that it's hard to come up with reasonable assumptions that make a deductible IRA come out worse than a taxable account based on conversion of capital gain into ordinary income (assuming no penalties on withdrawal, etc.). The benefit of deferral generally outweighs the disadvantage of converting capital gain into ordinary income.

But it's not hard to project a taxable account doing better than a nondeductible (non-Roth) IRA. If you assume a buy-and-hold strategy with low dividends and only a small amount of turnover, you can get a noticeable advantage in the taxable account.

Before the middle of last year, this was an issue for only those investors in the 31% tax bracket or higher, and not a terribly significant issue until you reached the 36% bracket. But now that capital gains rates are lower it affects everyone. Food for thought.

KAT in Chicagoland
http://www.fairmark.com
Tax Guide for Investors
Includes a complete guide to Roth IRAs
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