From: jrbd@craycos.com (James Davies)
Newsgroups: misc.invest,misc.taxes
Subject: Savings Bonds vs. non-deductable IRAs (was: Need advice to lower taxes)
Date: 8 Jan 93 17:45:50 GMT
Distribution: usa
Organization: Cray Computer Corporation

In article <C0I513.LuL@taligent.com> cep@taligent.com (Christophe Pettus) writes:
>In article <93006.172820MBADBH@rohvm1.rohmhaas.com> David B. Horvath, CDP <MBADBH@rohvm1.rohmhaas.com> writes:
>>In article <1993Jan6.192026.8885@asl.dl.nec.com> dillhoff@aslws01.asl.dl.nec.com
>>> He can also place $2000 per year into an IRA account.  While he
>>> cannot deduct the $2,000, all earnings in that account grow untaxed
>>> until he withdraws thpse funds many years from now.
>>>
>>   Not if he's already in a 401k with a $100k annual income.  There's
>>   a cap on the income you can earn & be in a 401k & fund an IRA.
>
>Note that the original poster said "cannot deduct the $2,000."  You may
>fund an IRA for the full $2,000 regardless of your income and whether or
>not you are covered by a qualified employee pension plan.  If you are
>covered by such a plan, and your income exceeds certain thresholds, you
>may not be able to _deduct_ the amount you put in, but you can still fund
>the account, and it grows tax-free until withdrawl.

I just had an interesting thought (prompted by a recent investigation of
US Savings Bonds).

If you put money into a EE Savings Bond and leave it there for at least
5 years, currently you're guaranteed at least a 6% average annual return,
for up to 30 years.  The interest is tax-deferred until you cash in the
bond, and it is also free from state taxes. SO, the point is, if you
want to get a minimum-risk, tax-deferred investment savings bonds sound like
a better alternative than a non-deductable IRA.

Other pro's of savings bonds vs. IRA's:
	You can withdraw the money (all or in part) at any time after 6
	months.  After 5 years there's no interest penalty.

	The interest rate is slightly better than the equivalent CD rates
	(the current rate varies based on (85% of?) the 5-year treasury 
	bond rate).  Many IRA's require you to take ridiculously short
	CD terms, like 18 months.

	You can put up to $15,000 in series EE savings bonds per year 
	per person.

	You can buy them without having to go through a trustee or broker.

	Under certain circumstances, the gains are tax-free if used
	for tuition (and you don't have to decide whether to use them
	for this until the tuition bill arrives, e.g. if your kid
	doesn't go to college in 15 years you can hold the bonds and
	keep deferring the taxes).

	Congress probably won't try to seize them to balance the budget.

Con's:
	If you want a better return you can't shift your money around
	without having to pay taxes on the gain immediately.

	If you're more than 30 years from retirement you will have to
	cash in earlier than you planned to avoid losing interest.  (EE
	bonds stop paying interest after 30 years).

	If short-term CD rates exceed 6% you will probably fare worse
	than an equivalent ultraconservative IRA would.

	Your friends will tease you for being a gutless wimp, while they
	all put their money into an S&P 500 index fund :-)

Any comments?
Newsgroups: misc.invest