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Here's what I'm doing - should work for you too Posted by Rod [Email] (#3128) [Profile/Gallery] (more from Rod) on Tue, 3 Apr 2007 10:03:39 In Reply to: General Tax (IRA) Advice sought, SPO, Sun, 1 Apr 2007 10:12:48 Members do not see ads below this line. - Help Keep This Site Online - Signup |
I'm in the same situation as you - maxing out my 401k and can't contribute to a Roth IRA due to income limitations. You cannot make a deductible traditional IRA contribution either because of income limitations.
What you can do is make a non-deductible IRA contribution. I'm not usually a big fan of non-deductible IRA's. Why? Because although the IRA grows tax-deferred you pay taxes at ordinary rates on all the income you eventually withdraw from it - even income attributable to long-term capital gains and qualified dividends that usually are subject to the reduced 15% federal tax rate.
There's a quirk in the law, however, coming up in 2010 (assuming congress doesn't change the law before then) that means in that year (and thereafter) you will be able to convert your non-deductible IRA to a Roth IRA (paying the taxes on the appreciation over that period) with no regard to income limitations. It's a back door way of getting into a Roth IRA. If you already have some deductible IRA accounts it doesn't work as well (for reasons too complex to go into here), but otherwise it's a no brainer.
Rod - I'm a CPA, but not your CPA. Everybody's tax circumstances can differ - consult with a tax expert.
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