Let's say for whatever reason, I can not take the income deduction for traditional IRA contributions. Also, I am not eligible for a Roth IRA. Perhaps my MAGI is too high.
In this case, if I contribute to a traditional IRA:
- I'll have paid regular income tax on the money I put in (since I can not deduct it), and
- I'll pay tax on gains when I take distributions as regular income.
Compared to an ordinary taxable account, this seems like not a great deal, since it doesn't get the benefit of the lower tax rate on capital gains and qualified dividends that a taxable account would.
Is there some additional advantage to the traditional IRA when an income deduction can not be made that I'm overlooking?