Retirement Planning/Ira's double taxed?

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Question
If I contribute to my Ira from my savings, will I be taxed on that when I withdraw it later?  I'm a bit confused, because being that the money in my savings account would have been taxed already from my paycheck, then if its taxed again later that's double taxation.  I'm I missing something?

Thanks you

Tom

Answer
Hi Tom,
No you wouldn't be double taxed if you did this. Only the amount of your gains would be taxed. If you put already taxed money into an IRA, this is considered a non-deductible IRA. I have never seen any advantage to a non-deductible IRA. You would basically be in much the same position tax wise as you are now, plus you would be subject to Required Minimum Distributions or RMD's after you turn 70 1/2. So you would have to take withdrawals even if you did not want to. If you are looking to earn a higher interest rate than in the bank, you might want to consider just a plain old brokerage account where you would pay capital gains tax on the gains of the account when you withdrawal. If you are not looking for a higher rate of return, than you would be better leaving the money in the bank. The advantage of an IRA is the tax deferral (even that doesn't turn out to be an advantage for some) of your contributions. Since your money has already been taxed, you don't get that advantage. I hope this helps, feel free to ask more questions. Good luck!

Dave

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David M Iannopollo

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I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!

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