From: "jIM" 
Newsgroups: misc.invest.financial-plan
Subject: Re: IRA Madness
Date: Mon, 11 Dec 2006 12:48:12 -0600
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Todd H. wrote:
> "woessner@gmail.com"  writes:
>
> > I'm starting to do some basic tax planning for 2007 and I've come
> > across a snag.  The basic question I'm trying to answer is: What sort
> > of IRA contributions should I plan on?  For the past couple years,
> > we've made Roth contributions, which is my preference.  However, my
> > wife's salary will triple in the middle of the 2007 (she's finishing
> > residency), which will put us over the eligibility limit.  Unless we
> > max out our 401k's, which would push us back under the limit.  But what
> > if one or both of our 401k's start offering the Roth option?  So many
> > unknowns!
> >
> > So I came up with a pretty simple solution.  I could just defer our IRA
> > contriubtions until 2008.  That seems like a pretty safe thing to do.
> > But is there any downside to doing so?  For example, if you make a
> > traditional IRA contribution for 2007 in 2008, do you deduct it on your
> > 2007 or 2008 taxes (assuming you're eligible for the deduction)?
> >
> > This problem must come up a lot.  Can anyone offer some advice on how
> > to handle it?
>
> Personally I may my 401k out before making any roth IRA
> contributions.
>
> The reason, unless I'm wrong is that 401k contributions reduce your
> taxable income (i.e. you're investing with tax-free bucks), while roth
> ira contributions do not.
>
> I admittedly don't know all the in's and outs of this, but perhaps
> other posters will illuminate further with more precise language. df
>
> --
> --
> Todd H.
> http://www.toddh.net/

qualified Roth withdraws are tax free
deductable IRA and 401k withdraws are taxed at ordinary income rates.

If (WHEN) our combined AGI exceeds the limits for a Roth IRA (AGI of
$160,000, I believe), This would imply to me that we have a significant
amount saved (we contribute 10% to 401ks now) and would likely be in
higher tax bracket when we retire as well... so using the Roth to pay
taxes now gives us the flexibility to

1) avoid large RMD's from 401k/ traditional IRA assetts
2) avoid paying taxes on some of our income in retirement