Q. I cannot fully deduct the IRA, should I invest in it or not?
A. My opinion is, if your AGI is so high that you cannot fully deduct the IRA, do NOT invest in it, for the following reasons:
Not flexible to use.
When you need it, you find it hard to get. IRA has 10% penalty for distributions under age 59.
Tough regulation on distribution
When you don't need it, you may find you are under the gun of IRS because of the required minimum distribution rules (RMD).
Higher tax
Your gains will be taxed as ordinary income (chances are due to your high income, in your retirement stage, your annual income is still high, resulting in higher tax rates).
So why for the benefit of deferred tax, you suffer these big drawbacks, especially considering if you invest the money in a diversified portfolio for the long term, your dividend payout will be taxed at a much lower 15% dividend tax rate?
In addition, you have the freedom of using or not using the money at your will.
Of course, if you are thinking of using the backdoor conversion to contribute to the non-deductible IRA then convert to Roth IRA, it will be another discussion, see our discussion here.
A. My opinion is, if your AGI is so high that you cannot fully deduct the IRA, do NOT invest in it, for the following reasons:
Not flexible to use.
When you need it, you find it hard to get. IRA has 10% penalty for distributions under age 59.
Tough regulation on distribution
When you don't need it, you may find you are under the gun of IRS because of the required minimum distribution rules (RMD).
Higher tax
Your gains will be taxed as ordinary income (chances are due to your high income, in your retirement stage, your annual income is still high, resulting in higher tax rates).
So why for the benefit of deferred tax, you suffer these big drawbacks, especially considering if you invest the money in a diversified portfolio for the long term, your dividend payout will be taxed at a much lower 15% dividend tax rate?
In addition, you have the freedom of using or not using the money at your will.
Of course, if you are thinking of using the backdoor conversion to contribute to the non-deductible IRA then convert to Roth IRA, it will be another discussion, see our discussion here.
RSS Feed
