| Non-deductible IRA: is it worth it? |
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auggyf
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| Non-deductible IRA: is it worth it? |
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Hi,
I'm 22 years old, and do not qualify for deductible/Roth IRA contributions. Let's say I want to invest for long-term capital appreciation. Is it worth putting money in a non-deductible IRA account, or is it better in a regular, taxable account?
The only benefit I see of the IRA is if I experienced S.T. capital gains, which I most likely won't be happening for me with long term investments. For L.T. gains, I'd be much happier realizing that at the L.T. cap gain tax rate than whatever mysterious tax rate there will be in 40 years.
Is there something I'm missing? What's so good about tax-deferred income tax for 40 year long investments?
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Sat Sep 24, 2005 6:02 pm |
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Rolo
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The Roth isn't deducted. Why are you not eligible?
"Expect me when you see me."
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Sat Sep 24, 2005 10:12 pm |
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auggyf
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It is my understanding that you are only eligible if income < $110k
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Sat Sep 24, 2005 10:39 pm |
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sayyes
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The benefit is that the gains of an IRA are NOT taxed. When you go get your money after you retire you don't pay ANY taxes on it!
I think you might be confusing the ROTH IRA with a 401(k) plan, which does defer your tax payments.
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Sun Sep 25, 2005 6:04 pm |
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Rolo
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quote:
Originally posted by auggyf
It is my understanding that you are only eligible if income < $110k
Modified AGI, not your total income. $160K married.
quote:
Originally posted by sayyes
The benefit is that the gains of an IRA are NOT taxed. When you go get your money after you retire you don't pay ANY taxes on it!
Roth: correct, Traditional: incorrect.
"Expect me when you see me."
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Tue Sep 27, 2005 1:35 am |
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auggyf
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Anyway, back to my original question. Any comments?
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Tue Oct 04, 2005 4:58 pm |
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jlee1224
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If you are ineligible for a Roth (you make too much), and you are ineligible for a deductible IRA (you have a 401k, 403b, etc at work, or you make too much), then a non-D IRA can be helpful.
Keep in mind, we're not talking about a lot of money. Limits are $4000 (going up) a year, and if you make too much, it is relatively low.
After that, fully fund whatever option you have a work. 401k max is $14k (going up).
Ok, now you have some money leftover every pay period and you'd like to invest for long term capital appreciation. You can certainly open a personal taxable account. Buy a mutual fund (or a couple of them), and dollar-cost average in and hold until you are 60. You'll pay some taxes every year, but nothing major since you are holding them for long term growth. As long as you reinvest dividends, I don't see a problem here. (Note: I'd put all stocks in your personal account, and put bonds/stocks in your 401k to take advantage of tax treatment).
If you are definitely holding this money for retirement (money to be never touched for 38 years), then a non-D IRA is a good supplement to your personal account. Since you can only put in $4k (this year), you'll probably have a non-D IRA and a personal account for any more money you can invest. The tax-deferred growth won't be noticeable year after year, but you will have more money if you had that money in a regular account. Also, since it's tax-deferred, you can buy and sell without consequence in your non-D IRA, which gives people some wiggle room to move money. In a personal account, you'll pay taxes if you sell (if up) to move money.
Hopefully this answers some questions. Keep in mind that this is after you have an adequately sized emergency stash and have adequate life insurance (if married or someone is dependent on you).
If you are 22 and are "making too much", I congratulate you. Everyone should have this problem.
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Tue Oct 04, 2005 7:11 pm |
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