Personally, I don't agree with that strategy. I contribute 1/12th of the total each month. Doing it that way gets you half a year of growth and eliminates the risk of buying on a day where funds spiked.

Also, I've found it much easier to just have contributions automatically transferred each month.

If your IRA is with a major company like Schwab, transfer the total amount into money market funds now, and then dollar-cost average into the funds or other investments of your choice as the year progresses.

Thanks for the feedback. Interesting strategy. We do that for our major investments, but have never taken the time to do it for the IRA. Guess the ease depends on where you are investing it.

My point was simply that people don't need to wait until after the end of the calendar year. Seems many wait until they are about to pay their taxes for the prior calendar year's income.

Why would I want to invest funds with a IRA; especially a non-deductible one at that?

1. I can achieve tax free earnings without having to put the funds in an IRA, plus I have access to the funds anytime I please.

2. No step up in bais upon death in IRA assets....But if I invest a mutual fund; that earns most of its income in appreciation (even now, even if it did earn dividends taxed at only 15%), 100% FMV at date of death....

Bottom line,, there is no cookie cutter approach, or one size fits all, to investing, finance, taxes etc...

>>No step up in ba[s]is upon death in IRA assets....>>

It's tax sheltered and there is no need for a 'step up basis upon death'. IRAs and life insurance are POD accounts and pass outside probate. Their value at time of death is counted into your estate's net worth for estate taxation purposes only.

Any taxable mutual funds or bond assets are also valued upon the day of death for estate tax purposes; how they are inherited depends upon how they are titled and whether they are held personally or in a trust account, especially if it is a QTIP, Bypass or Special Needs trust as opposed to a Revocable Living Trust. Retirement assets and insurance will only revert to the estate in the event that all primary and contingent beneficiaries die prior to or (usually, but this depends upon state law) within 30 days of the death of the original owner of the assets...or, if the estate is named as the contingent beneficiary.

Anyone who has non-retirement investment accounts should always keep their original cost basis information for all equity purchases and transfers. Financial institutions don't have to keep records of this, although some are beginning to. It's the titled account owner or heir who's responsible for keeping the cost basis info for the IRS, even if it's eight decades down the road before the taxable account is inherited.

Ok,,, I gather you dont understand the estate and income tax concept of what "income in respect of the decedent" is..

Very basic example:

2 estates, estate A and B....have only assets as follows:

A has $1M of Mutual Fund.
B has $1M of retirement assets ( Id ont care what kind of plan).....

Summary:

Estate tax for both states..............zero.

Income tax consequences to beneficiaries upon inheritance???? Any idea???

beneficary of estate A.. beenficiary liquidates mutual fund... income tax = zero...

beneficiary of estate B.....benefciary of estate B, takes a complete distribution of pension assets....

Please tell me, how is this complete distribution tax ed to the beneficary???

Answer... Just like ordinary income; based upon taxpayers marginal brackets which presently could be at least 35% for federal purposes...

So, is your answer stilL the same as above????

Your "very basic example" blows your entire case out of the water when you look at how someone would get a million dollar mutual fund vs a million in an IRA. In order to buy shares in a mutual fund, the average person needs to use money earned as income. That means they already paid income tax on it. Since they were likely contributing the most during their prime working years, they were likely paying the largest marginal rate of their lifetime. That means, they wouldn't have a million dollar mutual fund - more like 600k.

Besides, IRA's, 401k's etc are designed to be "retirement" accounts. They aren't designed to be "inheritance" accounts. They provide tax incentives to encourage people to take care of themselves during their old age. Since most americans aren't saving enough to do that right now, the particulars of passing on millions to heirs isn't really important. Unless people start saving considerable amounts of money now, they are likely to spend decades relying on the government to support them and then eventually dying broke.

Also, I would be very leery of predicting inheritance laws 40+ years into the future. The prudent course is to plan how to take care of yourself (and family) for your lifetime and then, in the happy event that you live to a ripe old age and have accumulated a fortune, find a competent tax professional to help plan for inheritance issues.

Why do you think mutual funds and IRAs are mutually exclusive? They're not.

Boy, I can see whom I am dealing with here.

"my scenario blows my whole case out of the water,, since one would need earned income to fund a mutual fund"..

If you "revisit",entirely the advisor's recoomendations earlier, you will see,, advice was stated "everyone should fund an IRA,, even if it isnt tax deductible"....

One step further, you mention, one needs "earned income to fund a mutual fund",,,,

For what its worth here,,generally, taxapyers cant fund Traditional IRA accounts if they dont have earned income.... (just like you are supposedly stating with Mutual Funds)Further, if you fund a non-deductible IRA as recommended above, this implies that it comes with after-tax dollars, just like the mutual fund investment....

A little knowledge is very dangerous, from what it appears to me here....

To state that "retirement accounts arent intended to be inheritance accounts",,,,is sort of an inexperienced comment to make, please dont be offended. But,,

Any assset, whether its a personal residence, vacation home, rental property, closely held corporate stock, a foreign Passive Foreign Investment Corpration, a Rolls Royce, A Picasso, a savings account, a checking account, Retirement asssets, raw land, gold,

Are all eventually inherited.. So I am not sure, what your point is...

Good luck to all.

P.S.. Watch out for advice, especially when it sounds too good to be true, when its provided for free, from people claiming to be experts, from others not experienced enough in many of the issues that are intertwined, such as personal financial planning, estate taxation, income taxation, gifting and wealth transferring...

Now that jimrac has given an example, I understand the point he is trying to make. However, there's a couple of things he doesn't consider.

IF you took an inheritance as cash, and IF you kept it as cash, then yes, you could spend it down without incurring income tax.

However, if you take that money and invest it, you will pay taxes upon your gains. But you do get that Âstep up basis jimrac is depending upon. But of course, if you allow the account to compound over time without spending principal, you run the risk of incurring estate taxes for your own heirs.

You could also buy an annuity, which has some limited tax advantages.

Conversely, inheriting an IRA is different. You do not have to cash out an inherited IRA, in fact you should always roll it over into an FBO account in your and the deceasedÂs names. IF the owner was taking distributions, heirs also have to take distributions  but they can take the minimum distribution (Required Minimum Distribution, or RMD) which at young ages is a very modest amount indeed.

If the owner was not taking distributions, the IRA can be left intact until age 70-1/2 for the heir.

And in the case of an inherited Roth IRA, there is NEVER any income tax, for owner or heirs. Because the gains in the Roth compound tax-free, they win hands-down over any taxable account. The biggest issue is the salary restrictions (higher wage earners are barred from contributing to a Roth, although in 2010 only they can convert any amount they wish to pay income taxes on now) and the low annual contribution amount (although I expect Congress will probably increase those at some point).

As my ex-boss, a respected CFP, used to say, "Don't let the tax tail wag the dog!" Tax planning should be looked at in a holistic fashion. Somebody's going to pay taxes, it just depends on who that is, and how much. Frankly, if you had a $1M mutual fund account - and I know quite a few people who do - if you were that concerned about your heirs paying income taxes, you'd set up an ILIT (Irrevocable Life Insurance Trust) for your immediate heirs, and a Bypass or QTIP trust for the future generation heirs.

Sorry - I forgot one other advantage of inheriting the regular IRA. If the owner hadn't started distributions, the tax-free advantage of compounding could add substantially to the account over a few decades.

If the owner was only taking the smallest RMD, the heir can still use their own minimum RMD to 'stretch' distributions over decades, while the IRA continues to compound tax-free gains. This is one of the keystones of speaker Ed SlottÂs "Stay Rich Forever and Ever with Ed Slott" presentations.

As one can contribute either to a Roth or Regular IRA, but must stay within the maximum limits total ($5K under age 49, $6K age 50+), the Roth wins on either straight inheritance/estate tax/income tax considerations, or as retirement savings if you have more than 15 yrs to compound your investment tax-free gains.