youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I'm not a fan of non-deductible IRAs. I would prefer taxable myself.
How about deductiblle IRAs if your income is low enough to qualify?
Or 401k beyond the match?
I'm not a fan of non-deductible IRAs. I would prefer taxable myself.
If you had invested the same way in a taxable account instead of the non-deductible IRA, then the small cap stock would still be now like 6x the cost basis. But what is going to be the difference in taxes when you need to spend the money?I don't understand people thinking it was a big investing mistake. My IRA was all in a small cap stock fund and is now like 6x the cost basis.
How about deductiblle IRAs if your income is low enough to qualify?
Or 401k beyond the match?
Fine with both since they can defer ordinary income.
I prefer taxable over non-deductible IRA since income is tax at lower than ordinary rates and I prefer that over just deferral of income but conversion of income from preferential rates to ordinary rates.
I believe that you have to fill out Form 8606 for non deductible ira contributions from now to eternity. My friend got messed up in that and is now sorry. Luckly, on a few years before retirement for him.
If you use turbotax it is no big deal.
I have a portion non-deductible. I'm OK with it. I plan on roth conversions later and will have to pro-rate. I think I can handle the math.
I put all my REITs in this IRA.
Fermion, If your earned income with some deductions is below about $188,000 for married filing jointly you can move $6500 each if you are 50+. So there is a way to move taxable with limits. All gains will forever be "tax-free" unless they change the rules.
Of the various things to keep track of with FIRE finances, the basis of either TIRA's or Roth IRA's is one of the easiest. I don't know where folks get the idea it's going to be some sort of "nightmare."
Non deductible IRA has an advantage that you can convert it to a Roth if at some point you have a low income. You can never convert taxable to Roth.
Say you had a non deductible IRA with a basis of $30,000 that has grown to $80,000. If you are retired and living off of dividends plus some cash (maturing CDs, etc) you may be able to convert $25,000 a year of the IRA to Roth and pay no tax at all. $25,000 x 5/8 = $15,625 which still leaves about $4400 you could have in interest and pay no tax for a married couple ($20,000 in deductions and personal exemptions). You could have dividends and capital gains of an additional $20,000 or more and still pay no tax.
Fermion, If your earned income with some deductions is below about $188,000 for married filing jointly you can move $6500 each if you are 50+. So there is a way to move taxable with limits. All gains will forever be "tax-free" unless they change the rules.
I copied this from "Fox Business"
"
Roth limited for income:
- $178,000 to $188,000 for married couples filing jointly in 2013; $181,000 to $191,000 for the 2014 tax year.
- $112,000 to $127,000 for single or head of household taxpayers or married couples filing separately and who did not live with their spouse in 2013; $114,000 to $129,000 for 2014 filings.
- Zero to $10,000 for married couples filing separately who lived together at any time during either the 2013 or 2014 tax year.
Exactly. If at least one person has enough earned income you can contribute up to the max in the Roth. I don't see why anyone with earned income wouldn't be moving their taxable account to the Roth if they are within the earned income limits other than the 5 year rules. Roth income is the only income that I know of that doesn't affect the taxation of Social Security.
I recently retired but wife is still working so I sometimes overlook the earned income caveat.
I realize that you have to be below the income limits, so for some it may not be an option.
So why would you not use a Roth IRA instead of the non-deductible IRA?
Thanks for all the comments. I think I will avoid the non deductible ira for now.
If you're holding one of those Penn Fed 3% CD's in your taxable account, how do you pay less than "ordinary rates" on the interest?
Not really, because the fund does pay out income and capital gains distributions most years, so I don't think it would be 6X. Something smaller because of tax drain.If you had invested the same way in a taxable account instead of the non-deductible IRA, then the small cap stock would still be now like 6x the cost basis. But what is going to be the difference in taxes when you need to spend the money?
Not true in my case at all. Income characteristics can change drastically when it comes from investments instead of salary and so tax brackets can drop big time.Many who earn too much to qualify for a deductible tIRA or Roth will not be in a lower tax bracket after retirement, especially if they reuse dryer sheets and save the high % of income that many here do.
Not true in my case at all. Income characteristics can change drastically when it comes from investments instead of salary and so tax brackets can drop big time.
Ah, I see. I guess it was a tax-efficient fund then.Not really, because the fund does pay out income and capital gains distributions most years, so I don't think it would be 6X. Something smaller because of tax drain.
I guess not super tax efficient as it did pay out distributions most years, sometimes substantial. But not as tax inefficient as an income fund or bonds.Ah, I see. I guess it was a tax-efficient fund then.
Many who earn too much to qualify for a deductible tIRA or Roth will not be in a lower tax bracket after retirement, especially if they reuse dryer sheets and save the high % of income that many here do.
I don't hold any fixed income in my taxable account. All fixed income (including the Pedfed CD) is in tax-deferred accounts where it is deferred ordinary income.
My taxable account is domestic equities that generate tax free qualified dividends and some international equities that generate dividends that are partially qualified and also provide me with a credit for foreign taxes paid and both provide me with tax free capital gains.
My effective federal tax rate on my taxable account investment income and capital gains last year was 2.2% (taxes/income with/without taxable account dividends and capital gains).