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
Tax Guide for Investors
Includes a complete guide to Roth IRAs
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!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.