Paging wallstreet....another IRA question

Will take some time later tonite and get all the answers for you.



I have some thoughts, but I want to write one reply versus several.

Hutch,

Here is a good site for the Simple IRA question-

LINK

Question 1-

I am not a risk taker when it comes to an IRA and you are right there..the odds of getting caught are MINIMAL..how is the IRS going to audit and catch the firm who allowed the contribution? Odds are low for sure. Now if you get caught it could be a mess..from a disallowed contribution, to penalties etc..if you played stupid I am sure it wouldnt be that bad. They would penalize you, disallow the contribution, probably make you pay taxes on the gain and yank it out etc..

Question 2-

The simple IRA has nothing to do with the other IRA choices, where it COULD come into play (and it did for me two years ago) is if you did NOT have an employer sponsored plan available and you crossed the income threshold, they still allow you to invest in a traditional IRA, but not a Roth..the phase out didnt take place since a 401k/Simple wasnt in play.

What happens with a code S is it means a Simple IRA plan.

Here are two pages that discuss the Roth phase out and Traditional IRA phase out-

ROTH

Trad IRA

(make sure to read the phase out rules for the Trad IRA when you have an employee sponsored plan)

Also note that you can STILL make a traditional IRA contribution even if you pass the phase out levels, but it is not deductible..

I think that last line is what you were wanting to know, that even if you reach phase out that you can contribute to a TRAD IRA, but not have the deduction on taxes.

Let me know what questions you have.

Hutch,

No prob, always like helping.

You are responsible for book keeping on contributions of course.

The benefit of a non deductible contribution is the tax deferred growth, no other benefit.

Yep you are right about the phase out..if you are single and covered by a qualified plan, the phase out is done at 62k.

If you had the money and can afford it I would STILL make a contribution even though it isnt deductible..

Sorry to be an imbecile, but don't you have to eventually pay taxes on any growth when you take out the money?  I'm not getting how and growth would be tax deferred. 

Hutch,

here is how it works.

You make a 4k NON-deductible contribution in 2008 and it hopefully turns into 40k in the next 30-40 yrs.

If this 40k were in a non-retirement acct you would pay taxes on dividends or any gains if you sold etc.

In a retirement acct you dont pay taxes until the money comes out..thus "deferred".

Plus the tax rate is flat and standard on retirement accounts, whereas capital gains taxes can be higher in certain circumstances.

So you are right about paying taxes when you pull it out but instead of paying while you are going, which in effect COULD take away potential capital (say if you were taking the capital gains taxes out of the principal if you had it invested in a non-retirement acct) then the multiplying effect could be reduced, thus the potential growth reduced.

More money stays WORKING if you defer taxes than paying as you go.

Let me know if that makes sense.