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Non-Deductible Traditional IRA vs. Taxable Account?
Old 12-27-2013, 12:23 PM   #1
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Non-Deductible Traditional IRA vs. Taxable Account?

Currently my income is too high to take the deduction for a Traditional IRA. It is also too high to contribute to a Roth IRA.

For the past few years, I have been making non-deductible contributions to my traditional IRA. I am wondering if this is the best use of my money? Or is contributing to a taxable account a better idea?

The investments in this account are all low cost, passive funds that mimic the S&P500 or some other index. I will make maybe 1 or 2 trades every 5 years to account for re-balancing. I'm 32 years old and expect to have 30 years to retirement.

Side note:
I understand the mechanics of a back door Roth IRA and its advantages. I do intend to take advantage of this rule, but for the moment, I'd like to get an opinion on the non-deductible traditional IRA vs. a taxable account.

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Old 12-27-2013, 12:33 PM   #2
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I'd contribute and do the back door Roth.

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Old 12-27-2013, 12:40 PM   #3
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Note: you will have to convert other non- Roth IRAs also. It may mean a tax hit if you have high gains in the existing IRA.
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Old 12-27-2013, 01:40 PM   #4
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With the tIRA you have a bunch of withdrawal restrictions and pay regular income tax rates on your gains. With the taxable account you have easy access to you money and can pay mostly capital gains rates. Convert the whole thing to a Roth if your gains are not too high. Then there's no tax on gains. The sooner the better.
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Old 12-31-2013, 08:13 PM   #5
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First, yes it is a good use of your money, but since you are contributing 100% after tax money the big benefit is immediate conversion to Roth so all the growth is tax free. As you wait you add tax penalty to the conversion. If you don't intend to convert then I'd recommend a taxable account is better. A good plan has a mix of all 3 types for the different phases of a long retirement.
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