.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear R.C.:

Oh, you poor lad, I don’t know how you’re able to cope with this problem. This problem must be terribly difficult for you and your wife to bear, but with your enormous personal strength, I know you shall prevail.

Certainly many folks reading this column will join me in expressing their profound sympathies for your IRA problem. I would not be surprised if some readers residing on the “Left Coast” organize a congressional sit-in to support more liberal laws allowing deductible IRA contributions for those in your group.

I’m reluctant to inform you that investing the maximum ($5,000 for you and $5,000 for your wife) in a nondeductible IRA could pay off hugely for both of you.

Most of us know that investing in a nondeductible IRA has some disadvantages. Though your money grows tax-free, you will pay ordinary income taxes on that growth when you make withdrawals, plus a 10 percent penalty if you are under age 59 1/2. A little tough to take, but that’s the law.

Though it is too late to do an IRA for 2006, I recommend that you IRA yourselves to the hilt for the tax years 2007, 2008 and 2009. I’m told that a 2006 change in the tax law will soon allow members of your minority group who earn more than $160,000 to convert their nondeductible IRAs into Roth IRAs in 2010. Read the previous sentence one more time just to be certain you heard me right!

You will pay ordinary taxes only on the capital gains. So if you max your IRA for those three years, you will each have $15,000 in nondeductible IRAs. And assuming that both of those IRAs have increased to $20,000 in value, your only tax liability is on the capital gains when you convert to a Roth. There is zero tax on the $15,000 you put in an IRA for you and the $15,000 you invested for your wife. And every penny of additional growth and or withdrawals after age 59 1/2 will be tax-free.

A Roth basically converts investment income (dividends, capital gains, interest) into tax-free income.

Unlike an IRA, in which you must begin taking withdrawals past age 70 1/2, a Roth IRA has no minimum distribution rules and the investments can remain within the Roth until the owner passes away.

If you invest those proceeds in a conservative mutual fund, you should be able to earn an average annual total return of 9 percent. So if you just let it ride and reinvest all the dividends and capital gains, this investment would grow to more than $260,000 in 25 years, every penny of which is tax-free. In those 25 years, those Roths will have produced ($260,000 less $30,000) $230,000 in income, which your beneficiaries (kids or kissing cousins) can withdraw tax-free.

This feature and others make it possible to use the Roth as an estate-planning tool. There are some fascinating estate tax advantages to owning a Roth, and I suggest you visit with your accountant or attorney to explore them.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service