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#4603259 - 12/14/17 08:45 AM Contributing to Trad.IRA even if not deductible?
Quattro Pete Offline


Registered: 10/30/02
Posts: 35838
Loc: Great Lakes
Does it make sense to max out your traditional IRA contribution limit even if you can't deduct it from your tax return?
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#4603263 - 12/14/17 08:53 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
Eosyn Offline


Registered: 07/15/11
Posts: 529
Loc: Michigan
If it's a "Traditional IRA," it is tax deductible. Contribution limit per year is $5500, unless you're 55 where you can contribute up to $6500/yr. I don't understand how a Traditional IRA can't be tax deductible, then again I'm not a financial planner/advisor.

Personally, if it was me, if you can't deduct it from your taxes, I'd put my money into a Roth IRA instead, that way you won't get taxed on the gains or the distribution (when the time comes).

Or, better yet, if you have a Health Savings Account (HSA), I'd put money in that. HSA is an awesome place to put tax free money away for retirement medical expenses (Health, dental, vision). Your contribution is tax deductible, gains are not taxed, distribution isn't taxed (as long as it's used for qualified medical expenses like Copays, Coinsurance, deductibles, etc) and you don't lose it at the end of the year, like a flex spending account. Only bad thing is, you have to have a high deductible health plan to qualify to have an HSA.


Edited by Eosyn (12/14/17 09:04 AM)
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#4603268 - 12/14/17 08:58 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
Mr Nice Offline


Registered: 09/12/04
Posts: 21178
Loc: Orlando, FL
Originally Posted By: Quattro Pete
Does it make sense to max out your traditional IRA contribution limit even if you can't deduct it from your tax return?

Traditional IRA lowers your taxable income.
Roth IRA doesn't but zero taxes after age 59.5

IRA 'catch up contributions' begins at age 50

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#4603286 - 12/14/17 09:12 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Mr Nice]
Quattro Pete Offline


Registered: 10/30/02
Posts: 35838
Loc: Great Lakes
Originally Posted By: Mr Nice
Originally Posted By: Quattro Pete
Does it make sense to max out your traditional IRA contribution limit even if you can't deduct it from your tax return?

Traditional IRA lowers your taxable income.


It doesn't if you already contribute to an employer-sponsored 401K plan and/or if your income is over certain level. That's what I meant when I stated it would not be tax deductible in my case, and hence why I question if it even makes sense to contribute to Traditional IRA in my case.
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#4603291 - 12/14/17 09:17 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Eosyn]
Quattro Pete Offline


Registered: 10/30/02
Posts: 35838
Loc: Great Lakes
Originally Posted By: Eosyn
If it's a "Traditional IRA," it is tax deductible.

Not if you already participate in an employer 401K plan and/or are at certain income level.

Quote:
I'd put my money into a Roth IRA instead,

Not an option in my case.

Quote:
Or, better yet, if you have a Health Savings Account (HSA), I'd put money in that.

Thanks, but between me and my wife, we are already maxing it out.
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#4603296 - 12/14/17 09:20 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
Mr Nice Offline


Registered: 09/12/04
Posts: 21178
Loc: Orlando, FL
Ok, you were clearer in your question after your second post.

The only bad about any IRA is that the maximum contribution limits are soooo little. They should be $15-20K in my opinion.



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#4603300 - 12/14/17 09:22 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
JMJNet Offline


Registered: 09/06/07
Posts: 931
Loc: TX, USA
Originally Posted By: Quattro Pete
Does it make sense to max out your traditional IRA contribution limit even if you can't deduct it from your tax return?


Based on the trail of answer above.

No, because either way you are taxed.
In the case of the traditional IRA, you will have to contribute after tax and you will have to pay the tax later when you withdraw the money in that traditional IRA.

Just put it in your regular investment account and you can use it anytime, just in case.
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#4603320 - 12/14/17 09:53 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
Astro14 Offline


Registered: 10/10/10
Posts: 8529
Loc: Virginia Beach
Originally Posted By: Quattro Pete
Originally Posted By: Eosyn
If it's a "Traditional IRA," it is tax deductible.

Not if you already participate in an employer 401K plan and/or are at certain income level.

Quote:
I'd put my money into a Roth IRA instead,

Not an option in my case.

Quote:
Or, better yet, if you have a Health Savings Account (HSA), I'd put money in that.

Thanks, but between me and my wife, we are already maxing it out.


We are in exactly your position, and make non-deductible contributions to our IRAs. The basic principle: we are in our highest tax bracket now, so avoid paying taxes on the gains (we already paid taxes on the contribution) until we are in a lower tax bracket.

Keep track of your non-deductible contributions as they form the non-taxable basis when you take the money out. You’ll only pay tax on the gain.
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#4603330 - 12/14/17 09:59 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
ArrestMeRedZ Offline


Registered: 11/11/08
Posts: 931
Loc: Las Vegas
Depends. Subject to conditions, if you put after tax money in an IRA, you can roll that money over into a Roth IRA without having to pay tax on it again. You can do this even if you make too much to contribute to a Roth IRA.

This part you will have to confirm, but what may limit your use of this is when you roll over from ordinary to Roth, you can't choose to roll the after tax money only - you roll the percentage it is of the total. For instance, if your ordinary IRA of $10k is made up of $8k normal, and $2k after tax money, and you roll $2k into a Roth (20% of the account), the IRS considers $400 of the rollover to be from the after tax money, and that portion of the rollover event to be non taxable. In this case, you would have to pay tax on $1600 of the rollover. It is a loophole that allows you to fund a Roth, even if you make too much to make normal contributions.
One statement that was incorrect is that you would have to pay tax on after tax contributions withdrawn from your IRA. You would have to pay tax on it's gains (hence the value of a Roth rollover), but not on a withdrawal of after tax money by itself. Of course you would have to keep good records for a long time.

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#4603341 - 12/14/17 10:12 AM Re: Contributing to Trad.IRA even if not deductible? [Re: ArrestMeRedZ]
Astro14 Offline


Registered: 10/10/10
Posts: 8529
Loc: Virginia Beach
To do a Roth conversion you must: 1. Be within the Roth income limits and 2. Pay the tax on the gains in your IRA.

So, no, this wouldn’t work for QP...
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#4603346 - 12/14/17 10:15 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
opus1 Offline


Registered: 12/13/04
Posts: 2497
Loc: Chicago Area
Short answer: no.

I don't want to deal with the paperwork/tracking of what's taxable and what isn't come withdrawal time. I'm a lazy, lazy, man.

I am, however, taking advantage of the "catch-up" provisions in my 401k and Roth IRA.
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#4603347 - 12/14/17 10:16 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
NibbanaBanana Offline


Registered: 05/23/16
Posts: 292
Loc: New England
A Vanguard deferred variable annuity. Very cheap. Tax deferred gains.
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#4603380 - 12/14/17 10:35 AM Re: Contributing to Trad.IRA even if not deductible? [Re: JMJNet]
Eosyn Offline


Registered: 07/15/11
Posts: 529
Loc: Michigan
Originally Posted By: JMJNet
Originally Posted By: Quattro Pete
Does it make sense to max out your traditional IRA contribution limit even if you can't deduct it from your tax return?


Based on the trail of answer above.

No, because either way you are taxed.
In the case of the traditional IRA, you will have to contribute after tax and you will have to pay the tax later when you withdraw the money in that traditional IRA.

Just put it in your regular investment account and you can use it anytime, just in case.


+1.
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#4603389 - 12/14/17 10:39 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
raytseng Offline


Registered: 12/11/08
Posts: 2333
Loc: CA
It really depends on your total portfolio and other opportunities.

If you are at the stage where you have such a high income where the ira contribution doesnt have tax benefits; this implies you should already have some large investment portfolios and lots of money to invest.

I will also assume your current ira portfolio balance should be large if youve been at this a while. So for example if the contribution would be less than 1% of your current portfoliobalance, and you have an additionall 40k to deposit to your regular account, its not even worth your time to do that small 5.5k sliver even if it had tax benefits. The daily ups and downs moves the balance more than the tax benefits of the 5.5k.
It has effectively no effect on your financial status or portfolio as it becomes lost in a hundreth of decimal point of gain.

As far as the cap gains, it is such a small amount that you could buy and hold an index and the cap gains would not be a factor until you sell. This assumes your that the bulk of your trading and investing would be unaffected by 5.5 stashed in an index or mutualfund when your typical trade is in $100k blocks of other shares.

Besides the avoidance of hassle, you are kept more flexible and more liquid or consolidated with other funds so you have options for other investment opportunities, thr most obvious being real estate. If you have opportunities for more shady stuff, i mean higher risk opportunities, it will be harder to do those with ira money.


Edited by raytseng (12/14/17 10:47 AM)

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#4603398 - 12/14/17 10:50 AM Re: Contributing to Trad.IRA even if not deductible? [Re: Quattro Pete]
NormanBuntz Offline


Registered: 07/27/13
Posts: 2121
Loc: Outer Banks, NC
Another short answer: no.

But make sure you max out your contributions to any 401-K, Flexible Spending Account or Healthcare Savings Account. Also if your taxable income allows you to make a Roth IRA contribution, that's a win win.

Some people recommend annuities. Keep your eyes wide open. Most annuities are much better for the company or salesperson than they are for the investor. If you must, check out annuity options with Vanguard and Fidelity Investments for the lowest costs and fees.
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