Quick Tax Question -- SEP Without Deduction Benefit

[TromboneAl]

Last year was the last year that I had earned income, and I can contribute about $1500 to my SEP-IRA for 2006. However, my tax will be so low, that the contribution will have no effect on my tax.

So, the question is: do I contribute anyway? I'd get the benefit of tax-free compounding. I have enough dough that I can make it to 59.5 without withdrawals. I don't care about RMD's. My tax rate will be pretty low for a while.

I'd like to decide before tomorrow morning.

Thanks,

 

[Martha]

Do you do a Roth contribution?

 

[TromboneAl]

Yes, Roth is maxed out. I'll be converting lots of the SEP-IRA money to Roths in the future, but there's plenty there for conversion.

 

[TromboneAl]

I guess the basic thing is this: I will get tax-free compounding, but for at least 7 of those years (between now and age 59.5), my tax rate will be low. I'll be withdrawing it when my tax rate is higher. So, it's probably not worth it.

 

[Martha]

Yeah, I'd skip it. Or do it and then convert it to a Roth next year when you don't have earned income.

 

[TromboneAl]

Yes, I decided to skip it. Thanks. I already have lots of money available for converting to Roth.