All Things Personal Finance

[Tortuga]

2 minutes ago, computerwiz said:

 

As in switching from a traditional 401k to the Roth version?

Yes, not all of it at once, just a percentage each year.

The idea is that when you are retired and in a lower tax bracket, you can convert some of a traditional IRA into a Roth and pay the taxes on the amount you convert. That gives you more in the Roth that grows tax free. That gives you more flexibility when you withdraw funds later.

[computerwiz]

1 minute ago, Tortuga said:

That gives you more in the Roth that grows tax free.

 

Just playing devil's advocate, but that's assuming it grows.  If you're putting it at the whims of the stock market, it could actually go down.  In which case, you paid taxes on money you're not even getting.

 

But in reality, the stock market always goes up over time.  So depending on the timing of things, yes you'd probably come out ahead by converting to a Roth.  In fact, the sooner the better because the market is about to heat up.  Between elections next year & the cutting of interest rates, it's ready to take off!

 

Then there's this:

 

[Tortuga]

4 minutes ago, computerwiz said:

So depending on the timing of things, yes you'd probably come out ahead by converting to a Roth. 

Jack wants to get a Roth IRA, I wondered what you thought about him getting a Traditional IRA for the tax deduction and then converting it to a Roth after he retires. 

[computerwiz]

1 minute ago, Tortuga said:

Jack wants to get a Roth IRA, I wondered what you thought about him getting a Traditional IRA for the tax deduction and then converting it to a Roth after he retires. 

 

Being early to the game (pre-retirement) I believe a Roth IRA is always a better option.  Because you pay taxes now on very little money.  And then that money grows & compounds and becomes a lot of money.  And then you get it all tax-free.

 

Looking at the chart I posted and seeing how the stock market grows over time, when time is on your side, you want to pay taxes now, not on all your gains.

[Tortuga]

3 minutes ago, computerwiz said:

 

Being early to the game (pre-retirement) I believe a Roth IRA is always a better option.  Because you pay taxes now on very little money.  And then that money grows & compounds and becomes a lot of money.  And then you get it all tax-free.

 

Looking at the chart I posted and seeing how the stock market grows over time, when time is on your side, you want to pay taxes now, not on all your gains.

The difference is the tax bracket you are in at the time that you pay the taxes. If someone is in a high tax bracket now, it could be more advantageous to fund a Traditional IRA and take the tax deduction now. Then convert a portion of that to a Roth each year when they are in a lower tax bracket.

[computerwiz]

3 minutes ago, Tortuga said:

The difference is the tax bracket you are in at the time that you pay the taxes. If someone is in a high tax bracket now, it could be more advantageous to fund a Traditional IRA and take the tax deduction now. Then convert a portion of that to a Roth each year when they are in a lower tax bracket.

 

I would argue that with enough time, that is meaningless.  The returns you get from the stock market would far outweigh any tax advantages from waiting.

 

ALSO, keep in mind how the brackets work: You pay the % of each bracket for the money that fits in each bracket.

 

So let's say I earn $1 too much and I end up in the next bracket at 35% tax rate.  Guess what?  I pay 35% on that $1.  I pay the other %s on the rest of my money.  35% on $1?  Big deal!!!

 

Realizing that makes me not worry so much about the brackets. 😉 

[Tortuga]

Saving 35% of a $6-8,000 IRA contribution is a lot of incentive to use a traditional IRA. Withdrawing that same money later at much lower tax rate is nice. Roth is the way to go if you can afford it for the initial investment.

[computerwiz]

1 minute ago, Tortuga said:

Saving 35% of a $6-8,000 IRA contribution is a lot of incentive to use a traditional IRA. Withdrawing that same money later at much lower tax rate is nice. Roth is the way to go if you can afford it for the initial investment.

 

That's why timing is so important.  With my Wealthfront account, they make about 10% a year on my money.  The math is a little more complex than simply saying "after 4 years I come out on top".  But I think it's safe to say if you got 10+ years before you need the money, the compounding gains have far outweighed the % you lost on taxes.

 

That's also why the Roth isn't always better.  But if you're early enough to it, I think it is.

[Cushi]

2 hours ago, computerwiz said:

 

Yes.  

 

When a company is removed from the S&P 500 because it is no longer considered one of the top 500 companies, the index fund or ETF will sell the shares of that company and use the proceeds to buy shares of the new company that is added to the index. This process is known as "rebalancing."

 

Investors in the index fund or ETF don't need to take any action when these changes occur. The fund manager handles the adjustments to ensure that the fund continues to track the performance of the S&P 500. Rebalancing is a routine and essential part of managing index funds to maintain their alignment with the underlying index's composition and objectives.

 

Also worth noting, this rebalancing is NOT a taxable event.  Since it is done by the fund manager or ETF, there is no taxable impact to you.

Thanks. That’s what I thought but wasn’t sure.

[Cushi]

@computerwiz How do you think the stock market will be affected when digital currency comes out?

[computerwiz]

1 minute ago, *Jack* said:

@computerwiz How do you think the stock market will be affected when digital currency comes out?

 

Not as much as one might think.  The big players have plenty of skepticism.  Even those that do dabble in it, like Elon Musk, have a very small % of their portfolio for crypto.  There's not enough history & trust for them to dive in head first with a large %. 

 

The worst I could imagine the stock market tanking from some wild "gold rush" to digital currency would be 5%.  I wouldn't worry about it that much because that would easily be erased in a year or less.  That being said, I do expect a wild "gold rush" into crypto soon.  In fact, I'm gonna add a good bit more money into it soon.  Just trying to determine the right time...

[Cushi]

15 minutes ago, computerwiz said:

 

Not as much as one might think.  The big players have plenty of skepticism.  Even those that do dabble in it, like Elon Musk, have a very small % of their portfolio for crypto.  There's not enough history & trust for them to dive in head first with a large %. 

 

The worst I could imagine the stock market tanking from some wild "gold rush" to digital currency would be 5%.  I wouldn't worry about it that much because that would easily be erased in a year or less.  That being said, I do expect a wild "gold rush" into crypto soon.  In fact, I'm gonna add a good bit more money into it soon.  Just trying to determine the right time...

Thanks. I want to start investing in January 2024. I did some research on whether or not it’s a good idea to contribute the maximum at one time annually and I found out about dollar cost averaging. I want to invest the maximum per year, $7,000 broken up into 12 monthly payments and then invest more when the maximum goes up or when I turn 50 (if this system lasts that long), whichever comes first. 
At first I thought I wouldn’t be able to retire and withdraw the earnings before this system ends but I have 22 years until I can. It may. We’ll just have to see.

Edited November 29, 2023 by *Jack*

[bigvince]

3 minutes ago, *Jack* said:

Thanks. I want to start investing in January 2024. I did some research on whether or not it’s a good idea to contribute the maximum at one time annually and I found out about dollar cost averaging. I want to invest the maximum per year, $7,000 broken up into 12 monthly payments and then invest more when the maximum goes up or when I turn 50 (if this system lasts that long), whichever comes first. 
At first I thought I wouldn’t be able to retire and withdraw the earnings before this system ends but I have 22 years until I can. It may. We’ll just have to see.

I am in the same boat and completely confused thus far, lol. I have 401k, Roth IRA, regular IRA, money market accounts.

[computerwiz]

1 minute ago, *Jack* said:

dollar cost averaging

 

That's generally the best way to go.  HOWEVER, as with all things, there are nuances that can change your mind.

 

At present....I don't really see any nuances that would advise against that.  The market has been green too many weeks in a row + it is bumping up against some resistance.  There are no clear signals from the MACD or RSI either.  So DCA'ing is the way to fly right now...  

 

[computerwiz]

32 minutes ago, bigvince said:

I am in the same boat and completely confused thus far, lol. I have 401k, Roth IRA, regular IRA, money market accounts.

 

Sounds like you've already got a system.  What's confusing?  😅

[bigvince]

1 hour ago, computerwiz said:

 

Sounds like you've already got a system.  What's confusing?  😅

I know that how I have things is not optimal, and there is little to no investing going on, so growth is very limited.

[computerwiz]

2 minutes ago, bigvince said:

I know that how I have things is not optimal, and there is little to no investing going on, so growth is very limited.

 

Do you know your % gains yearly for each (on average)?  If it's less than 10%, I can help you get onboard with Wealthfront.  You can even easily roll things over without worrying about penalties...

[Cushi]

I should finish up reading one book tonight so I’m going to start this one tonight or tomorrow. I was going to read it later but since I plan to start investing early next year, I want to learn more about investing and will read it now. I’ve heard a ton about the book from the Ramsey show and am looking forward to it. I’ll let you guys know what I think.

[bigvince]

17 hours ago, computerwiz said:

 

Do you know your % gains yearly for each (on average)?  If it's less than 10%, I can help you get onboard with Wealthfront.  You can even easily roll things over without worrying about penalties...

yes, it's less than 10%. I am not sure about rolling over anything, I like the 401k through my employer because the money comes out pre tax. TBH I don't even know if that's better or not.

[computerwiz]

1 hour ago, bigvince said:

I like the 401k through my employer because the money comes out pre tax. TBH I don't even know if that's better or not.

 

Yes keep that.  Wealthfront doesn't offer anything to replace it.

 

On the other hand, your Roth could be converted over, if you wish.

 

https://support.wealthfront.com/hc/en-us/articles/209353146-Rollover-Can-I-roll-over-a-401k-403b-or-TSP-into-an-IRA-

Edited November 30, 2023 by computerwiz
Added link

[Cushi]

 

[Cushi]

*Warning* says the D word in this video, but good information nonetheless.

 

 

[Tortuga]

11 minutes ago, *Jack* said:

*Warning* says the D word in this video, but good information nonetheless.

Dollar? Debt? Debit? Deferred? Deposit? Draft?

Dang! 

[Tortuga]

On 11/29/2023 at 12:35 PM, computerwiz said:

 

Do you know your % gains yearly for each (on average)?  If it's less than 10%, I can help you get onboard with Wealthfront.  You can even easily roll things over without worrying about penalties...

What is your portfolio YTD gains for this year?

[computerwiz]

26 minutes ago, Tortuga said:

What is your portfolio YTD gains for this year?

 

For Wealthfront, about 13%.

 

 

 

For crypto, we're not talking about that just yet. 😁  But it's getting good, very quickly!