Planning for Retirement

 

sometimes be wise choices, under what circumstances would you consider them?" Roy tested us.

"When none of the other plans is available to us ... or when we have reached the deductibility limits of our chosen plans and want to do further retirement saving," Cathy noted without missing a beat.

"Precisely. For example, Dave making a nondeductible IRA contribution without making his maximum allowable deductible contribution to his 403(b) plan would be a dumb move. But if you have none of those alternatives available, then, yes, non-deductible IRA contributions and tax-deferred annuity purchases may make sense. You've probably seen all the articles and advertising about Roth IRAs, which are a new type of nondeductible IRA. Unlike a traditional IRA, Roth IRA contributions are always non-deductible."

"No one can make a deductible contribution!" Cathy exclaimed. "Then what's all the excitement about?"

"Hold on," Roy insisted. "I wasn't finished. With a tra-ditional IRA, withdrawals are taxed at ordinary income tax rates. When you withdraw money from a Roth IRA, assuming you have met certain conditions, the earnings in your account will be tax free."

"Well that's different," Cathy said thoughtfully. "Sign me up!"

"You'll have to read the fine print," Roy cautioned. "As usual, a lot of requirements apply. For instance, some people with higher incomes like yours, Cathy, may not be able to contribute at all. Tom and Dave, on the other hand, shouldn't have any problem."

"Don't be so sure, Roy. What are the thresholds?"

"For a married person, like you, Dave, your contribution