Worth contributing to traditional nondeductible IRA?

[edu]

For mid career attending physician with a large amount of money in traditional IRA account (from prior 401K rollover) who therefore can not do a back door Roth without significant tax implications, is it worth contributing the $5,500 yearly into a nondeductible IRA? Or better off putting that $ into taxable investment accounts?

(I understand contributing to a nondeductible IRA is a way to diversify retirement savings and is creditor protected, but not sure it is a smart move in comparison to taxable investment accounts given that taxable accounts offer better rates on dividends and long-term capital gains income than the IRA does)

??

[triad]

any chance of doing a solo 401k and rolling your large IRA into that?

[Spatty99]

I believe a traditional IRA is usually your last choice.  Assuming the savings justify the effort, the ideal plan is to create some sort of personal business (in my state of FL it was only about $150 plus a bunch of paperwork to form a pass through LLC)(annual renewal is $140), then open a 401k for the business (mine was free at Etrade, plus another bunch of paperwork) and transfer all IRA balances to the 401k.

[jfoxcpacfp]

edu$ wrote:

For mid career attending physician with a large amount of money in traditional IRA account (from prior 401K rollover) who therefore can not do a back door Roth without significant tax implications, is it worth contributing the $5,500 yearly into a nondeductible IRA? Or better off putting that $ into taxable investment accounts?

(I understand contributing to a nondeductible IRA is a way to diversify retirement savings and is creditor protected, but not sure it is a smart move in comparison to taxable investment accounts given that taxable accounts offer better rates on dividends and long-term capital gains income than the IRA does)

??

Click to expand...

It depends on your future chances of getting the pre-tax IRA $$ out of the IRA and the timing thereof. If you can't move it within a few years, I'd go for the taxable account. Other factors to consider are your age, your plans, and how much you have saved already. This post may help: 11 Reasons You Need a Taxable Investment Account.

[AZdoc68]

edu$ wrote:

For mid career attending physician with a large amount of money in traditional IRA account (from prior 401K rollover) who therefore can not do a back door Roth without significant tax implications, is it worth contributing the $5,500 yearly into a nondeductible IRA? Or better off putting that $ into taxable investment accounts?

(I understand contributing to a nondeductible IRA is a way to diversify retirement savings and is creditor protected, but not sure it is a smart move in comparison to taxable investment accounts given that taxable accounts offer better rates on dividends and long-term capital gains income than the IRA does)

??

Click to expand...

I'm in the exact same boat as you and I see little reason to make non-deductible TIRA contributions at this point.  I did, for backdoor Roth purposes, for years until a large rollover ended that option in 2016 just like with yourself.  Until I can figure out the self-employment income/individual 401K thing, I'll just save in a taxable account.

[spiritrider]

If we were to go back to a time before backdoor Roth's were possible. The general consensus was that you should only use a non-deductible IRA, if you did not have enough room in your total tax-deferred space for the fixed income portion of your asset allocation. The thinking was that this was better than tax inefficient fixed income in taxable.

This generally only occurred as physicians aged and both their taxable accounts increased and the ratio of fixed income needs increased in their asset allocation. Adding low cost non-deductible IRA space was/is far preferable than any of the alternative expensive annuities.

Now, I would advise I Bonds to meet your fixed income allocation needs first, before I would use a non-deductible IRA. You certainly don't want to turn after-tax investments that could be redeemed at favorable capital gains rates, to being taxed at ordinary income tax rates.

[Ramiro1986]

Hello,

I have posted this question elsewhere in this website, but it was on an old comment so it will probably be buried.

I am new at this, sorry if this is a silly question. How do I open a NON-deductible traditional IRA account?

When I go to companies websites (like vanguard, fidelity) they do not specify if the account is deductible vs non deductible traditional IRA, they just say "traditional IRA." I don't want to make the mistake of opening a traditional deductible account.

 

Thank you.

[jfoxcpacfp]

Ramiro1986 wrote:

Hello,

I have posted this question elsewhere in this website, but it was on an old comment so it will probably be buried.

I am new at this, sorry if this is a silly question. How do I open a NON-deductible traditional IRA account?

When I go to companies websites (like vanguard, fidelity) they do not specify if the account is deductible vs non deductible traditional IRA, they just say “traditional IRA.” I don’t want to make the mistake of opening a traditional deductible account.

Click to expand...

It's easier than you think. You just open and contribute to a TIRA. The deductibility is determined by other factors - your AGI and whether you and/or your spouse have retirement plans available at work. (And earned income, of course.) So the reason the account application isn't specific is because the custodian doesn't have that information. When you file your tax return, you will determine whether it is deductible or not. Hope that helps!

[jz]

@ edu$,   consider that the non-deductible IRA may serve legacy goals as a stretch IRA.   Otherwise, I'm with jfox.  A big taxable account is fabulous and serves many purposes.

[jfoxcpacfp]

jz wrote:

@ edu$,   consider that the non-deductible IRA may serve legacy goals as a stretch IRA.

Click to expand...

The reason this is not a good idea is that you are:

• Not growing your money tax-free


• Paying taxes at ordinary income rates (highest marginal rate on growth)

Growth in a taxable account is taxed at lower preferential rates and is also completely flexible (no restrictions on use). Unless you know that you'll be able to move that money into a backdoor Roth in a few years (4 or 5 at the most), the only use I see for a nondeductible TIRA is asset protection, which I don't view as a good trade-off. I would caution against parking money in a nondeductible Roth for a lengthy period of time.