Phoenix is Phoenix's financial advisor. Has worked out great so far. My favourite statistic in finance is 'mutual funds don't even beat the market'. I know plenty of the grey-headed whose superannuation were destroyed in the 08 crash, and had to drag their despondent asses back into the office. Abdicate responsibility and you will suffer.
Do you use financial advisors?
If you're going to go the route of the financial advisor, make sure your advisor is acting as a legal fiduciary, as this assures he/she must, by law, act in the best interest of his/her clients.
The overwhelming majority of 'advisors' out there are anything but – they're simply salesmen, peddling products to their uneducated 'clients' that will get them the fattest commissions and kickbacks. Many of these said advisors make their entire living off one giant conflict of interest (most don't even invest their own money in the manner in which they're investing yours, if that tells you anything).
The financial services lobby spends billions annually to keep the racket going, so they can continue to get away with employing mind-numbing jargon (classics like the 'suitability standard' is just one example of such blatant and intentional obfuscation) and thousand-page investment manuscripts to essentially bury all of the hidden costs and fees they'll be sacking from your portfolio, year-in and year-out. And it's all legal.
Here's a good checklist to consider when selecting an advisor. I've met the author of the article numerous times – he's an active poster in the boglehead forums, so you might recognize his name.
Seneca
The overwhelming majority of 'advisors' out there are anything but – they're simply salesmen, peddling products to their uneducated 'clients' that will get them the fattest commissions and kickbacks. Many of these said advisors make their entire living off one giant conflict of interest (most don't even invest their own money in the manner in which they're investing yours, if that tells you anything).
The financial services lobby spends billions annually to keep the racket going, so they can continue to get away with employing mind-numbing jargon (classics like the 'suitability standard' is just one example of such blatant and intentional obfuscation) and thousand-page investment manuscripts to essentially bury all of the hidden costs and fees they'll be sacking from your portfolio, year-in and year-out. And it's all legal.
Here's a good checklist to consider when selecting an advisor. I've met the author of the article numerous times – he's an active poster in the boglehead forums, so you might recognize his name.
Seneca
Quote: (05-15-2015 10:10 AM)Phoenix Wrote:
Phoenix is Phoenix's financial advisor. Has worked out great so far. My favourite statistic in finance is 'mutual funds don't even beat the market'. I know plenty of the grey-headed whose superannuation were destroyed in the 08 crash, and had to drag their despondent asses back into the office. Abdicate responsibility and you will suffer.
That is mostly true, but not completely. I remember advising a friend and her husband on picking a right investment vehicle. That was some 10 years ago. I knew that long-term China won't do bad, so it was a fundamental perception as well.
Then it took me 8 hours of constant poring over right funds to find a good one for them with a low risk profile, stable performance, the fund management being led by excellent men etc. Most of the good funds I found were not attainable to them as they were Hedge Funds my friend would have needed 200.000$ minimum investment for. Some Hedge Funds by the way currently attract the best people on Earth (with plenty of scum in the middle), because they pay the highest salaries.
Needless to say that fund they invested in performed better than even the Chinese passive index funds. Most financial advisers won't do that to such a degree, because they don't profit much from recommending those funds. Some charge a flat fee, but if an adviser is any good, he is usually quite wealthy as well and does not bother advising people who want to plow some 2000$ / month into some long-term investment. Customers have an aversion to flat fees which makes the entire business even less ethical than it already is. That problem continues with Private Banking, where the banks make most of the profit not via some fees, but a cut in the recommended portfolio. I even saw some small private banks advise their clients on purchasing paintings of artists that the bank has before pushed to inflate the prices. That's why the richest people generally employ their own people & lawyers to deal with those guys. It takes a con-artist to know a con-artist.
Quote: (05-15-2015 10:37 AM)seneca Wrote:
If you're going to go the route of the financial advisor, make sure your advisor is acting as a legal fiduciary, as this assures he/she must, by law, act in the best interest of his/her clients.
The overwhelming majority of 'advisors' out there are anything but – they're simply salesmen, peddling products to their uneducated 'clients' that will get them the fattest commissions and kickbacks. Many of these said advisors make their entire living off one giant conflict of interest (most don't even invest their own money in the manner in which they're investing yours, if that tells you anything).
The financial services lobby spends billions annually to keep the racket going, so they can continue to get away with employing mind-numbing jargon (classics like the 'suitability standard' is just one example of such blatant and intentional obfuscation) and thousand-page investment manuscripts to essentially bury all of the hidden costs and fees they'll be sacking from your portfolio, year-in and year-out. And it's all legal.
Here's a good checklist to consider when selecting an advisor. I've met the author of the article numerous times – he's an active poster in the boglehead forums, so you might recognize his name.
Seneca
Sounds like the same racquet occurs in Australia.
QFT.
Paid, professional financial advice is probably worth it if you look for someone who charges per hour and you do the preliminary research before going in. That is, you have a general outline of how you want to invest your money and you go in with a bunch of pointed, specific questions that help you flesh out the details.
Financial advisers can probably also work well if you're someone with cash but not a lot of free time. The adviser will charge $200-300 or more per hour. You can get a lot of value out of two hours of advice, and you'd save yourself hours and hours of independent research which you could use to make money.
But basically for most people I think that you'd do best to just learn it on your own, or take a class, and see a financial adviser only when you need hard analysis on specific scenarios. I find that you really need to understand how the system works generally to decide best how to invest. I learned this stuff on my own last fall/this winter and spring and although by doing so I've made myself an untold amount of money over the long run, it took a long goddamn time.
Financial advisers can probably also work well if you're someone with cash but not a lot of free time. The adviser will charge $200-300 or more per hour. You can get a lot of value out of two hours of advice, and you'd save yourself hours and hours of independent research which you could use to make money.
But basically for most people I think that you'd do best to just learn it on your own, or take a class, and see a financial adviser only when you need hard analysis on specific scenarios. I find that you really need to understand how the system works generally to decide best how to invest. I learned this stuff on my own last fall/this winter and spring and although by doing so I've made myself an untold amount of money over the long run, it took a long goddamn time.
Interesting debate about financial advisors. So the feeling I get is to not use one, until I make tons of money either by investing or through a business and I come upon a specific problem that I'm stumped with. Then I could get a fuidicary advisor to look at that specific problem.
Until then I'm on the Mr Money Mustache forum, and I'm posting under the handle "Outbound". If any of you are posting there, give me a shout.
Until then I'm on the Mr Money Mustache forum, and I'm posting under the handle "Outbound". If any of you are posting there, give me a shout.
I am a financial advisor so perhaps my viewpoint is biased but here's what I would offer. You could probably do just as good for yourself if you did a lot of research and reading yourself. You then could pick out the best funds and asset classes.
As far as advisors go; if you find one who has been in the industry a while, say 15 years or longer he might be a valuable asset provided he meets certain criteria;
1. Being in the business so long will ensure he's been through several bear markets and crashes.
2. Make sure he works for a reputable firm or has good reviews.
3. Ask him how he gets paid as many nowadays earn fees instead of commissions. This means, they will receive a percentage each year of the assets under management instead of an 'upfront' commission. I believe this is better because if he earns a little bit each year, he's more motivated to stay on top of your investments so you'll be happy with the returns so you'll keep your money with him so he can continue to earn those fees for a long time.
4. A good advisor who has been in the business a while can possess a vast wealth of knowledge regarding different account types, tax laws and of course, investment types. This information is valuable. Sure you could find these things yourself, but it would take a lot of time in research and reading. A good advisor who's been doing this for years "just knows" because it's his livelihood.
5. Once he recommends a portfolio to you, go home and research his recommendations. Are they quality and good investments with a provable long term track record? If so, he probably gave you good advice.
Another idea is to manage a portion of the money yourself and let your an advisor you've researched manage the rest. After a fair amount of time, like an absolute minimum of a year, but preferably 3 to 5, compare the results.
It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.
As far as advisors go; if you find one who has been in the industry a while, say 15 years or longer he might be a valuable asset provided he meets certain criteria;
1. Being in the business so long will ensure he's been through several bear markets and crashes.
2. Make sure he works for a reputable firm or has good reviews.
3. Ask him how he gets paid as many nowadays earn fees instead of commissions. This means, they will receive a percentage each year of the assets under management instead of an 'upfront' commission. I believe this is better because if he earns a little bit each year, he's more motivated to stay on top of your investments so you'll be happy with the returns so you'll keep your money with him so he can continue to earn those fees for a long time.
4. A good advisor who has been in the business a while can possess a vast wealth of knowledge regarding different account types, tax laws and of course, investment types. This information is valuable. Sure you could find these things yourself, but it would take a lot of time in research and reading. A good advisor who's been doing this for years "just knows" because it's his livelihood.
5. Once he recommends a portfolio to you, go home and research his recommendations. Are they quality and good investments with a provable long term track record? If so, he probably gave you good advice.
Another idea is to manage a portion of the money yourself and let your an advisor you've researched manage the rest. After a fair amount of time, like an absolute minimum of a year, but preferably 3 to 5, compare the results.
It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.
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Quote: (05-16-2015 06:42 PM)robreke Wrote:
It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.
The bad ones far outnumber the good ones and corruption is built into the system. You can avoid such things with legal regulation as in the practice of law, where lawyers are held to a fiduciary duty, but such does not exist with financial advisers.
financial advisers cannot be trusted. its a very dirty industry that cares only for its commissions.
My business partner has been a financial planner in Asia for over a decade and the main takeaway I've gotten from working with him is DIVERSIFICATION.
So if all your investments are in tech, take a portion of that and keep in cash, take another portion and stick in a completely different asset class like real estate and even in a different country. Don't keep all your eggs in one basket.
So if all your investments are in tech, take a portion of that and keep in cash, take another portion and stick in a completely different asset class like real estate and even in a different country. Don't keep all your eggs in one basket.
Robreke: that was a solid post. What advice or rules of thumb would you offer regarding taxes for us wage slaves, as well as those who are self employed and qualify for a SEP?
In general, a data sheet on the lesser-known info would be great.
In general, a data sheet on the lesser-known info would be great.
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Quote: (05-16-2015 11:02 PM)polar Wrote:
Robreke: that was a solid post. What advice or rules of thumb would you offer regarding taxes for us wage slaves, as well as those who are self employed and qualify for a SEP?
In general, a data sheet on the lesser-known info would be great.
Some quick rules of thumb. Start an IRA. If you're at or under the 25% federal tax bracket and make less than $ 114k (which of course goes hand in hand with being in a lower tax bracket) I'd do a roth. try to max it out which is $ 5500 per year. If you can't do that, at least do 10% of your income. I'd also advise build a 'war chest' savings account of 5 to 10K It sucks that savings accounts are paying nothing, but if you can do that and have that cash there, it gives you a lot of confidence and backup cash when a slow month hits.
A Roth is great because all growth occurs tax free and all withdrawals are also tax free. You never pay taxes on the growth and income within it. The drawback is you can not write off your contributions.
If you're in a higher bracket, just do a regular IRA and max it out likewise. For a traditional or regular IRA, the growth occurs tax deferred and the distributions are taxed as income. However, all contributions are tax deductible from you annual income.
SEPs are good if you're self employed and make alot of money. You can contribute up to $ 48,000 in a SEP and write all of that off of your income. Most people don't make so much that they can sock away 48K in an IRA though...but if you do, it's a nice write off and tax deduction.
As far as investments, a good basic idea is a portfolio of diversified mutual funds. Look for 4 and 5 morningstar rated funds. Different funds like a US Large cap blue chip fund, US small and/or madcap fund. International stock fund. Perhaps an quality fixed income/bond fund though younger guys don't need as many bonds.
If you're investing regularly, every month, this is known as dollar cost averaging which over time decreases your cost basis ( a good thing) because you buy more shares when the market is down and vice versa. So a guy that's starting in his 20s or 30s and knows he's going to be sticking to a plan like this over at least 20 years doesn't need to be very concerned with market fluctuations or even crashes.
Are there faster more efficient ways to build wealth? Sure, but if you've got a main business, presumably you're doing that so you want to make sure your excess savings are invested as wisely as possible for the long term and that secure nest egg down the line.
I'll also add that the stock market has been in an uptrend/bull market since March of 2009. That's a long time for a Bull market and it WILL come to an end. We're going to have a correction. there will be another bear market. Bear markets are tough but are usually shorter lived than bull markets. They can last from 1 to 4 or so years. However, during the 70s, that whole decade was basically a do nothing sideways, slightly down, bear market.
Again , if you're investing long term, dollar cost averaging and somewhat young, it's not that big of a deal, just be aware it'll happen. Long term, a good stock mutual fund will average 8 - 10 % per year. This is historical of course and this is through several bull and bear market cycles. Therefore, from a historical standpoint, long term investing in the stock market has made one quite decent, inflation beating, positive returns on one's wealth.
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Quote: (05-16-2015 07:39 PM)Yeti Wrote:
Quote: (05-16-2015 06:42 PM)robreke Wrote:
It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.
The bad ones far outnumber the good ones and corruption is built into the system. You can avoid such things with legal regulation as in the practice of law, where lawyers are held to a fiduciary duty, but such does not exist with financial advisers.
That's incorrect. Financial advisors that are licensed with Series 7 and regulated by FINRA ( which is all licensed reps) are bound by fiduciary duty to their clients. We undergo continuing education several times a year this hammers these points home in terms of fiduciary duty and always putting the needs of the clients above all other considerations. we are not allowed to discuss client matters with anyone as we are bound by client/advisor privilege just as a lawyer is. The financial advisory business is heavily regulated by FINRA and the SEC.
Don't believe everything is still like "the wolf of wall street" or "Boiler Room" It's not. Hollywood has done a lot to glamorize and of course distort what most financial advisors do on a day to day basis.
The industry rules and regulations further tightened after the 2008 sub prime crisis. The amount of regulations and paperwork I must adhere to now at least tripled since then.
- One planet orbiting a star. Billions of stars in the galaxy. Billions of galaxies in the universe. Approach.
#BallsWin
Quote: (05-17-2015 08:56 AM)robreke Wrote:
Quote: (05-16-2015 07:39 PM)Yeti Wrote:
Quote: (05-16-2015 06:42 PM)robreke Wrote:
It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.
The bad ones far outnumber the good ones and corruption is built into the system. You can avoid such things with legal regulation as in the practice of law, where lawyers are held to a fiduciary duty, but such does not exist with financial advisers.
That's incorrect. Financial advisors that are licensed with Series 7 and regulated by FINRA ( which is all licensed reps) are bound by fiduciary duty to their clients. We undergo continuing education several times a year this hammers these points home in terms of fiduciary duty and always putting the needs of the clients above all other considerations. we are not allowed to discuss client matters with anyone as we are bound by client/advisor privilege just as a lawyer is. The financial advisory business is heavily regulated by FINRA and the SEC.
Don't believe everything is still like "the wolf of wall street" or "Boiler Room" It's not. Hollywood has done a lot to glamorize and of course distort what most financial advisors do on a day to day basis.
The industry rules and regulations further tightened after the 2008 sub prime crisis. The amount of regulations and paperwork I must adhere to now at least tripled since then.
I wasn't really relying on Hollywood. I was relying on what John Bogle, founder of Vanguard, stated in this interview (and which the documentary expounded upon):
The Retirement Gamble (PBS)
I can't look up at which minute they discuss it but the general idea is that advisers are not bound to a fiduciary duty.
Quote: (05-17-2015 08:49 AM)robreke Wrote:
Start an IRA. If you're at or under the 25% federal tax bracket and make less than $ 114k (which of course goes hand in hand with being in a lower tax bracket) I'd do a roth. try to max it out which is $ 5500 per year. If you can't do that, at least do 10% of your income. I'd also advise build a 'war chest' savings account of 5 to 10K It sucks that savings accounts are paying nothing, but if you can do that and have that cash there, it gives you a lot of confidence and backup cash when a slow month hits.
Keep in mind that if you want to save even more in taxes, and invest more money from the start, you can work toward a Roth conversion down the road.
Jlcollinsnh: Roth Conversion Ladders (post by Mad Fientist)
Investing in a Roth IRA while in the 25% tax bracket is still fine and you can go either way, but 25% is still a lot to pay. You can instead invest that 25% money into traditional IRA (avoiding taxes on that money entirely). The money grows tax-free into whatever you invest it. Sometime down the road when you may be making less money, for example when you're down in the 15% bracket or even the 10% bracket, you can convert some of those traditional IRA funds each year to a Roth IRA. You'll pay 10% or 15% on the conversions if you happen to be in those brackets. Then, five years later, you can withdraw those funds from the Roth IRA, tax-free.
So instead of paying 25% now on investments into a Roth IRA, you wait until you're making less and convert to a Roth sometime down the road. Given that you're paying less taxes later, and investing more money up front (25% of $5,500 is $1,375 that you're not investing into the market), this can add up to a big difference.
Roth IRA's are great but there are other choices if you're in the relatively high 25% bracket for investing.
The Roth conversion strategy is particularly great for those of us who want to avoid the rat race and retire early. For example, this post by a guy who retired in his 30s/40s and pays 0 taxes on $90,000 of income in a year:
The Go Curry Cracker 2013 Taxes
Never Pay Taxes Again
Quote: (05-17-2015 01:43 PM)Yeti Wrote:
Quote: (05-17-2015 08:49 AM)robreke Wrote:
Start an IRA. If you're at or under the 25% federal tax bracket and make less than $ 114k (which of course goes hand in hand with being in a lower tax bracket) I'd do a roth. try to max it out which is $ 5500 per year. If you can't do that, at least do 10% of your income. I'd also advise build a 'war chest' savings account of 5 to 10K It sucks that savings accounts are paying nothing, but if you can do that and have that cash there, it gives you a lot of confidence and backup cash when a slow month hits.
Keep in mind that if you want to save even more in taxes, and invest more money from the start, you can work toward a Roth conversion down the road.
Jlcollinsnh: Roth Conversion Ladders (post by Mad Fientist)
Investing in a Roth IRA while in the 25% tax bracket is still fine and you can go either way, but 25% is still a lot to pay. You can instead invest that 25% money into traditional IRA (avoiding taxes on that money entirely). The money grows tax-free into whatever you invest it. Sometime down the road when you may be making less money, for example when you're down in the 15% bracket or even the 10% bracket, you can convert some of those traditional IRA funds each year to a Roth IRA. You'll pay 10% or 15% on the conversions if you happen to be in those brackets. Then, five years later, you can withdraw those funds from the Roth IRA, tax-free.
So instead of paying 25% now on investments into a Roth IRA, you wait until you're making less and convert to a Roth sometime down the road. Given that you're paying less taxes later, and investing more money up front (25% of $5,500 is $1,375 that you're not investing into the market), this can add up to a big difference.
Roth IRA's are great but there are other choices if you're in the relatively high 25% bracket for investing.
The Roth conversion strategy is particularly great for those of us who want to avoid the rat race and retire early. For example, this post by a guy who retired in his 30s/40s and pays 0 taxes on $90,000 of income in a year:
The Go Curry Cracker 2013 Taxes
Never Pay Taxes Again
Wow, this is very interesting. Let me say that I am in the 28% tax bracket right now. So you are essentially saying that I should stop contributing to the Roth right now, open a Traditional IRA and contribute $5500 a year to it... and deduct that amount from my taxable income?
Then later, when I make less money down the road, I transfer some money from the traditional IRA to the Roth every year?
Quote: (05-17-2015 01:50 PM)CleanSlate Wrote:
Wow, this is very interesting. Let me say that I am in the 28% tax bracket right now. So you are essentially saying that I should stop contributing to the Roth right now, open a Traditional IRA and contribute $5500 a year to it... and deduct that amount from my taxable income?
Then later, when I make less money down the road, I transfer some money from the traditional IRA to the Roth every year?
Yeah that's what a Roth conversion is all about. Roth IRA's to me are great if you're in the 10% or 15% tax bracket. And they're still fine if you're in the 25% tax bracket.
If you poke around a bit though with research and plan it right, you can get away with Roth conversions and pay much less in taxes and have more money overall when you eventually withdraw your money. The downside is that you have to really know what you're doing, think about how you can make the Roth conversion strategy fit into your life, and that you can't use the Roth conversion money for five years. So you've got to get your money from other sources in the meantime, for example from taxable (non-retirement/tax-advantaged) accounts. They're not for everyone. The general idea though is that sometime down the road you'll make your first Roth conversion in that tax year when you're in the 10% or 15% tax bracket, and do this every year until you've converted all of the funds from your traditional IRA into your Roth IRA. Remember that you'll only have access to those Roth conversions five years later.
This is a good article to check out:
Traditional IRA vs. Roth IRA - The Final Battle
Even if you're in the 15% tax bracket, I'd still consider investing into a traditional IRA rather than a Roth IRA. See pages 5-6 here:
Traditional vs. Roth IRA
They found that you'll sometimes have more money after taxes when you eventually withdraw, if you invest in a traditional IRA rather than a Roth IRA, even in the 15% bracket. This is because of two things:
1) You invest more money up-front with a traditional IRA because you're not paying taxes now (assuming that the money that you do not pay now in taxes is invested elsewhere, for example a taxable account). This money is growing for years and years, money that wouldn't have been invested otherwise.
2) When you eventually withdraw, you're probably going to be in a lower tax bracket, like 10% or 15%. Because you're retired or not working as much. This is compared to investing in a Roth IRA in your younger years, paying into the 25% tax bracket.
Quote: (05-15-2015 04:01 AM)Darius Wrote:
http://www.stansberryradio.com/
The free episodes are good
He is fairly honest. He tells you that most people like to gamble instead of invest. So they want him to pick that one stock that will make them rich. He says the key is to diversify your portfolio and hold it for long periods of time. He also rates all of his how all of his team did every year.
I just subscribed to their daily wealth trader newsletter.
So far I like what I have read.
You want to know the only thing you can assume about a broken down old man? It's that he's a survivor.
Thanks, Yeti. But I just found that the traditional IRA has an income limit if you're covered under a retirement plan at work. I'm over the income limit so I won't be able to deduct anything I contribute to a traditional IRA... ugh. Still worth opening a traditional IRA anyway?
I plan to max my 401k as soon as I can, but I will still have some money to save.
I plan to max my 401k as soon as I can, but I will still have some money to save.
Quote: (05-17-2015 02:38 PM)CleanSlate Wrote:
Thanks, Yeti. But I just found that the traditional IRA has an income limit if you're covered under a retirement plan at work. I'm over the income limit so I won't be able to deduct anything I contribute to a traditional IRA... ugh. Still worth opening a traditional IRA anyway?
I plan to max my 401k as soon as I can, but I will still have some money to save.
Making too much money is a good 'problem' to have.
Quote: (05-17-2015 02:43 PM)Yeti Wrote:
Quote: (05-17-2015 02:38 PM)CleanSlate Wrote:
Thanks, Yeti. But I just found that the traditional IRA has an income limit if you're covered under a retirement plan at work. I'm over the income limit so I won't be able to deduct anything I contribute to a traditional IRA... ugh. Still worth opening a traditional IRA anyway?
I plan to max my 401k as soon as I can, but I will still have some money to save.
Making too much money is a good 'problem' to have.
Haha, but what good does it do if I don't have enough vacation time? I rather make half of what I currently make and live in a low COL poosy paradise... seriously.
Thanks for the write-up robreke. +1 to you!
I was drafting the below, but others beat me to it.
One more question: could you please explain how to do a Roth conversion ladder similar to the below? Assuming wage slave.
http://www.madfientist.com/retire-even-earlier/
Am I correct in assuming that to do this:
1. First max out IRA (regular), then 401K
2. When you leave/change jobs you can roll 401k into IRA.
3. Regular IRA can be rolled into Roth IRA once a year, you pay tax on your lower income tax at the time. SEP can be rolled over into regular IRA also yearly.
4. As the money in your Roth IRA accrues interest, you can withdraw interest tax free immediately. In five years, you can withdraw the rolled-over principal with no extra taxes.
You could leave your wage slave job and start your own business (or spend a year just living off savings). Move your 401k into IRA. File taxes as an S Corp even if you're LLC, pay yourself a salary on the lower side of average for your industry (backed up by research in case of audit), and pay yourself dividends to save on the difference between salary and dividend tax rates. Pay into SEP IRA. Within the year, you qualify for a much lower tax bracket, and you roll over regular IRA into Roth.
You can't touch the money you rolled over for 5 years, but you can withdraw newly accrued money immediately from a Roth tax free. Rinse, repeat for following roll-overs.
Even if your salary quickly goes up over the Roth limit or you go back to a full time job, your existing Roth money is yours for the taking spending in 5 years with no penalty taxes.
Am I missing anything?
I was drafting the below, but others beat me to it.
One more question: could you please explain how to do a Roth conversion ladder similar to the below? Assuming wage slave.
http://www.madfientist.com/retire-even-earlier/
Am I correct in assuming that to do this:
1. First max out IRA (regular), then 401K
2. When you leave/change jobs you can roll 401k into IRA.
3. Regular IRA can be rolled into Roth IRA once a year, you pay tax on your lower income tax at the time. SEP can be rolled over into regular IRA also yearly.
4. As the money in your Roth IRA accrues interest, you can withdraw interest tax free immediately. In five years, you can withdraw the rolled-over principal with no extra taxes.
You could leave your wage slave job and start your own business (or spend a year just living off savings). Move your 401k into IRA. File taxes as an S Corp even if you're LLC, pay yourself a salary on the lower side of average for your industry (backed up by research in case of audit), and pay yourself dividends to save on the difference between salary and dividend tax rates. Pay into SEP IRA. Within the year, you qualify for a much lower tax bracket, and you roll over regular IRA into Roth.
You can't touch the money you rolled over for 5 years, but you can withdraw newly accrued money immediately from a Roth tax free. Rinse, repeat for following roll-overs.
Even if your salary quickly goes up over the Roth limit or you go back to a full time job, your existing Roth money is yours for the taking spending in 5 years with no penalty taxes.
Am I missing anything?
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Captainstabbin: "girls get more attractive with your dick in their mouth. It's science."
Spaniard88: "The "believe anything" crew contributes: "She's probably a good girl, maybe she lost her virginity to someone with AIDS and only had sex once before you met her...give her a chance.""
Guys, what is the deal with tax loss harvesting? I have read this investopedia article, but it still seems a rather complex subject http://www.investopedia.com/articles/tax...esting.asp
I have read that companies like Betterment and Wealthfront do tax loss harvesting automatically. Is it worth investing with them and paying extra fees if the goal is to avoid making too many investment decisions throughout the year?
The investopedia article mentions that you need to make active investment decisions (trades) to harvest losses. For example, you invest 100K in an S&P500 fund, then the index drops 10% and you decide to sell it and include the loss in your tax return, then invest this money again. I'm struggling to understand how the likes of Wealthfront can do it automatically for you, because it looks like a combination of tax optimization and market timing.
Another question is how important is tax loss harvesting and what kind of people benefit more from it? Obviously, the higher the tax rate the more important it is, but is it worth doing for a long term/buy and hold kind of investor whose current marginal tax rate is relatively high but will be much lower or even 0 in retirement?
I have read that companies like Betterment and Wealthfront do tax loss harvesting automatically. Is it worth investing with them and paying extra fees if the goal is to avoid making too many investment decisions throughout the year?
The investopedia article mentions that you need to make active investment decisions (trades) to harvest losses. For example, you invest 100K in an S&P500 fund, then the index drops 10% and you decide to sell it and include the loss in your tax return, then invest this money again. I'm struggling to understand how the likes of Wealthfront can do it automatically for you, because it looks like a combination of tax optimization and market timing.
Another question is how important is tax loss harvesting and what kind of people benefit more from it? Obviously, the higher the tax rate the more important it is, but is it worth doing for a long term/buy and hold kind of investor whose current marginal tax rate is relatively high but will be much lower or even 0 in retirement?
https://www.kitces.com/blog/evaluating-t...arvesting/
In a nutshell tax loss harvesting as done by Wealthfront etc. is really just deferral of gains. They can't sell and buy the exact same investment, so they'll sell a Vanguard SP500 and buy a Fidelity SP500 tracker, for example. The professionals seem to think that Wealthfront and betterment overstate the returns from harvesting, it's mainly marketing. You'll still pay tax, just later rather than earlier, so those marginal tax dollars grow for longer. They sell out of one and buy into the other nearly simultaneously.
There's a more complicated way of doing it that involves calculating your max tax deduction. Based on that amount you sell a % of your biggest gainers to take advantage of your max deduction to lock in the gains (as long as you're careful with your ceiling, you can lock in a higher cost basis, reducing future taxes on sale), and selling your biggest losers to apply the loss against your taxes this year and carry forward, if large enough. If your biggest winners and losers are mutual funds or ETFs, voila, you just buy the same type of fund from another company. If it's a single stock, you either need to wait for a period of (3 months I think*), or invest in something else. You can't put the sale money into the EXACT same investment.
* else you risk IRS penalties for a wash sale - they deem you aren't eligible for the deduction since you buy it back too soon.
I don't know the details of how to tax harvest for yourself (via calculating your max tax deduction, etc.) but for any portfolio it can help by:
1. Minimizing current taxes by recognizing losses
2. Time value of money - defer tax gains and earn marginal returns
3. Lock in a higher tax basis for lower future taxes on sale.
Robreke / Zel / other finance pros, pass correct me if I'm wrong.
In a nutshell tax loss harvesting as done by Wealthfront etc. is really just deferral of gains. They can't sell and buy the exact same investment, so they'll sell a Vanguard SP500 and buy a Fidelity SP500 tracker, for example. The professionals seem to think that Wealthfront and betterment overstate the returns from harvesting, it's mainly marketing. You'll still pay tax, just later rather than earlier, so those marginal tax dollars grow for longer. They sell out of one and buy into the other nearly simultaneously.
There's a more complicated way of doing it that involves calculating your max tax deduction. Based on that amount you sell a % of your biggest gainers to take advantage of your max deduction to lock in the gains (as long as you're careful with your ceiling, you can lock in a higher cost basis, reducing future taxes on sale), and selling your biggest losers to apply the loss against your taxes this year and carry forward, if large enough. If your biggest winners and losers are mutual funds or ETFs, voila, you just buy the same type of fund from another company. If it's a single stock, you either need to wait for a period of (3 months I think*), or invest in something else. You can't put the sale money into the EXACT same investment.
* else you risk IRS penalties for a wash sale - they deem you aren't eligible for the deduction since you buy it back too soon.
I don't know the details of how to tax harvest for yourself (via calculating your max tax deduction, etc.) but for any portfolio it can help by:
1. Minimizing current taxes by recognizing losses
2. Time value of money - defer tax gains and earn marginal returns
3. Lock in a higher tax basis for lower future taxes on sale.
Robreke / Zel / other finance pros, pass correct me if I'm wrong.
Data Sheet Maps | On Musical Chicks | Rep Point Changes | Au Pairs on a Boat
Captainstabbin: "girls get more attractive with your dick in their mouth. It's science."
Spaniard88: "The "believe anything" crew contributes: "She's probably a good girl, maybe she lost her virginity to someone with AIDS and only had sex once before you met her...give her a chance.""
CleanSlate - financial advisors would help your tax planning, so even if you don't want to work more hours, you can keep more of your own money rather than paying for government-mandated sex reassignment surgeries or whatever it is our taxes go towards.
Data Sheet Maps | On Musical Chicks | Rep Point Changes | Au Pairs on a Boat
Captainstabbin: "girls get more attractive with your dick in their mouth. It's science."
Spaniard88: "The "believe anything" crew contributes: "She's probably a good girl, maybe she lost her virginity to someone with AIDS and only had sex once before you met her...give her a chance.""
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