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Hi there.

I'm maxing out my 401(K), but have too high of an income limit to use a Roth IRA or deduct from a traditional IRA.

I'm curious, should my next retirement investments go into a traditional IRA or regular Taxable investments?

I know a traditional IRA grows with tax free earnings, but If I pay taxes on both contributions and withdrawals on the IRA, would it be better just to invest in taxable mutual funds?

Please advise!

Cheri
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Cheri,

Assuming you have more than a 5 year investment horizon, I would go with a portfolio of individual growth stocks that don't pay any dividends (e.g. CSCO, INTC, etc.) You wouldn't owe any taxes until you sold the stocks, and you would then be taxed on the gain at the prevailing capital gains rate (currently 20% or 10%--depending on income--and assuming our good buddies in Congress don't raise the capital gains rate.)

ez

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<< I know a traditional IRA grows with tax free earnings, but If I pay taxes on both contributions and withdrawals on the IRA, would it be better just to invest in taxable mutual funds? >>

I want to make sure you understand how nondeductible traditional IRA contributions work. For the year you make the contribution, you file Form 8606, Part I, which establishes the basis for your traditional IRA. When you start taking distributions, you will complete the 8606 to compute the taxable portion of each distribution, because the previously-taxed contributions aren't taxed again when they come out.

TMF ExRO
Phil Marti
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Wouldn't there also be an excise tax that would have
to be paid yearly on the excess contributions (in
this case, every penny put in) as well?

Just curious.
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