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Traditional IRA vs. Roth (close to phasing out)

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cordreyr
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Traditional IRA vs. Roth (close to phasing out)  Reply with quote  

Love the forums, but just created an account. Thanks everyone for guidance gleaned from lurking, and also for future ideas!

So my wife and I have finally settled to the point that we're ready to start putting money in instruments other than our 401k accounts, but I'm interested to hear where you would consider putting money if you were in our situation.

Our combined MAGI is in the middle of the phase out range for Roth contributions, which means we're obviously way over the deductible Traditional IRA range as well. Given that we're so close to the Roth limit, would you bother contributing there at all, or just open non-deductible IRAs now?
Post Mon Oct 10, 2016 2:02 pm
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oldguy
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A nondeductible IRA isn't of much use. You're tied to the 59 1/2 age rules, you pay ordinary income tax (no cap gains tax break). I would open a taxable index fund with a no-load broker, they grow tax deferred, you pay only cap gains tax if you sell.
Post Mon Oct 10, 2016 4:28 pm
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cordreyr
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I've been reading up and I think you nailed why I was confused about which way we should go... I couldn't see a clear benefit to the non-deductible IRA, and apparently for good reason!

We do have a small index fund account, so it sounds like we should just start adding to that. Thanks!
Post Mon Oct 10, 2016 5:44 pm
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littleroc02us
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The beauty of Roth IRA's is there are no requried distributions at any age, unlike 401k's, there will be no post tax and the expense ratios are .004% in many cases on Admiral Index funds. So after getting your company match I'd much rather put my extra money into Roth's IRA's instead of traditionals because I'm scare to death of what our tax rates are going to be in the future with all of the Socialist programs being created.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Oct 10, 2016 9:08 pm
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cordreyr
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littleroc02us,

That was my initial thinking, but we're very, very close to being out of the allowable range to contribute to Roth accounts, hence my question. While I suppose we could put a little bit in for the next year or so, it seems odd to start contributing to an account that we can't grow for very long before being forced to move to other instruments...
Post Mon Oct 10, 2016 9:49 pm
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ken-do-nim
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Taxable accounts are very underrated.

Quiz question. At age 30, you invest $10,000 in a growth stock. At age 60, you retire at the end of the year. In January of the next year, you cash out that stock, now worth say $1,000,000. How much tax do you pay?

Answer: zero. You don't pay capital gains tax if you are in low income tax brackets, and since you just retired, you don't have any income.
Post Wed Oct 26, 2016 5:59 pm
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Publius
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Wait, is this true? Capital gains don't go towards your agi when figuring tax brackets?
Post Thu Oct 27, 2016 2:19 pm
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ken-do-nim
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quote:
Originally posted by Publius
Wait, is this true? Capital gains don't go towards your agi when figuring tax brackets?


Apparently I'm wrong. http://www.bankrate.com/finance/taxes/no-capital-gains-due-for-some-investors-1.aspx

On page 2 is an illustrative example:

For example, consider a married couple with $75,000 taxable income, with $65,000 of that from wages and $10,000 from capital gains. Although their total taxable income exceeds their $73,800 limit, they pay no tax on $8,800 of the capital gains. That's the amount by which the taxable threshold exceeds their income that's subject to ordinary tax rates. And the excess $1,200 in capital gains would be taxed at 15 percent, the regular capital gains rate for taxpayers in the 25 percent tax bracket.

Read more: http://www.bankrate.com/finance/taxes/no-capital-gains-due-for-some-investors-1.aspx#ixzz4OItDpL7R
Follow us: @Bankrate on Twitter | Bankrate on Facebook
Post Thu Oct 27, 2016 4:28 pm
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