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Does the traditional -> Roth trick still work?
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Jan 4, 2012 17:07
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substitute posted:Yes, why? Just curious is all. I'm thinking about doing it today since yesterday's rally fizzled.
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Jan 4, 2012 17:51
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bam thwok posted:Just curious is all. I'm thinking about doing it today since yesterday's rally fizzled. Oh okay, I didn't care about trying to time the market and I started the bank transfer on the 1st so the buy would be completed end of day on the 3rd. This was at Vanguard and I was just adding to my bond fund. substitute fucked around with this message at 15:09 on Jan 6, 2012 |
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Jan 4, 2012 18:01
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I'm waiting until the bank account I have linked to my Vanguard account has enough scratch in it. Basically just laziness I guess. I think on the 15th I'll have put in $2k so far for 2011 and by January 31st I should have the remainder in the account so I'll fund it then.
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Jan 4, 2012 20:37
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I always hate looking at my Roth IRA; it's always at a loss. This long term poo poo is a bit stomach turning.
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Jan 4, 2012 21:40
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I don't know, if I had invested in stocks over the short term and needed that money soon I'd feel a lot worse.
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Jan 4, 2012 22:48
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obi_ant posted:I always hate looking at my Roth IRA; it's always at a loss. This long term poo poo is a bit stomach turning. How old are you? If you're under 40, you really want to be seeing a down market so your contributions now are buying more for less. Everyday I am hoping and silently cheering for the market to tumble. from the OP: Q: The market is getting killed, shouldn't I wait it out for a while? A: NO!! A bear market like we are currently experiencing is the best possible thing for long-term investors! Consider this somewhat-famous Warren Buffet quote: Warren Buffet posted:short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves. Daeus fucked around with this message at 23:30 on Jan 4, 2012 |
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Jan 4, 2012 23:28
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Vomik posted:Does the traditional -> Roth trick still work? Yes it does.
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Jan 5, 2012 00:42
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Vomik posted:Does the traditional -> Roth trick still work?
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Jan 5, 2012 00:56
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I know this thread is pretty US-centric, but I'm a US citizen living outside the US and was wondering about some things involving a retirement. I just started a retirement account here in Korea, and was wondering if it's the best course of action for me to take. There are also some general investment strategy questions as well. Right now the account is set to about $500 a month for the next 32 years (payments till age 60, then the account matures at 65). It has a flexible payment of up to $1500 a month, but there are a few fees associated with that. Max payment per year is $18,000. Taxes are basically a non-issue with retirement accounts in Korea, so it's a good deal from that perspective. The account is currently set at a 50% split between bonds and 50% Korean stock market. I can set it to a more stock-heavy split, or do international markets as well, but I'm not so sure if I want to do that or not. I figure I can invest on those markets separately, but use this account as a "base". When the account matures, it is paid out in monthly installments, of which I can be flexible about the amounts, or even get it all at once if I'd like, although I'm not sure of the fees associated with that. Not sure how I want to do this, and just set it to a monthly payout. Is it like a lottery ticket where it's better to get a lump sum instead of monthly payments, even if large fees are involved? My question is this. I originally had wanted to start a Roth IRA, but was told by my credit union in the US that non-US income was not allowed to pay into the IRA setups because of its non-taxed nature (I currently make under $90,000 USD, which is the limit for non-taxation of foreign income). Is this true? If it isn't, should I go ahead and start throwing money at an IRA in the states? I'm currently 28 years old, so while it isn't too late, I think sooner is a good idea. Currently, my wife is not working, and will not be for the next five years (grad school), and my income is not stable, but if I lose my second job, I will still be able to make the $500 a month payments, as my only debt now is about $10,000 in student loans. Kind of a meandering post, but was wondering if anybody had any thoughts on my situation and if I'm on a decent track.
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Jan 5, 2012 04:59
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syphon posted:Can someone explain (in layman's terms) what this is? For those who don't qualify for a roth directly, you can contribute to a traditional account, then convert it to a roth. You'll just have to pay the taxes up front.
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Jan 5, 2012 05:15
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Momonari kun posted:I originally had wanted to start a Roth IRA, but was told by my credit union in the US that non-US income was not allowed to pay into the IRA setups because of its non-taxed nature (I currently make under $90,000 USD, which is the limit for non-taxation of foreign income). Is this true? Yes. Here are the relevant snippets of the IRS Publication that explains the rules for Roth IRAs. IRS posted:If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of: So, you can't use foreign earned income as part of your taxable compensation. If your taxable compensation is $0 then that's how much you can contribute to a Roth IRA.
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Jan 5, 2012 06:08
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nelson posted:Yes. Here are the relevant snippets of the IRS Publication that explains the rules for Roth IRAs. Should I start an IRA-like account instead, or are there other options? I'm not really familiar with the other options I have, and most resources online don't go into detail beyond Roth, trad-IRA, and 401ks.
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Jan 5, 2012 06:24
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Momonari kun posted:Should I start an IRA-like account instead, or are there other options? I'm not really familiar with the other options I have, and most resources online don't go into detail beyond Roth, trad-IRA, and 401ks. The entire point of retirement accounts is to let you avoid paying taxes either now or later. You've already avoided the taxes now so just put your investments into a normal taxable account. In a taxable account, capital gains (if you hold for more than a year) are taxed at a reduced rate. What you absolutely do not want to do is put it into a traditional IRA. I'm not sure you can even do this but if you could you'd be taxed when you take the money out at normal income rates. nelson fucked around with this message at 16:24 on Jan 5, 2012 |
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Jan 5, 2012 15:20
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edit: nm.
Sephiroth_IRA fucked around with this message at 17:33 on Jan 5, 2012 |
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Jan 5, 2012 15:28
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Orange_Lazarus posted:From that IRS publication: Which part are you confused on? It's in comparison to a traditional IRA which requires you to take distributions when you get older (The government wants their money)... with a Roth the government already got it so you can keep money in there.
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Jan 5, 2012 15:51
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nelson posted:The tax would not just be on the gains, but on everything you put in there. Just FYI, this is incorrect. If you put non-deductible contributions into a traditional IRA, you do have a cost-basis that is subtracted when you take withdrawals. If you have any gains and take a withdrawal, you can't take out JUST the contributions. In other words you will pay taxes on a portion of what you take out. I think (but am not sure) that it works like you take out $X.00 amount and you have to figure up on a pro-rated basis how much of that amount is gains and how much of it is contributions, then you have to pay tax on the gain part. There is an IRS worksheet for this but I don't really feel like looking at it to long to figure out how exactly it works. The really weird part is that I think if even have multiple accounts (lets say one with only non-deductible contributions and a second with only deductible contributions) you have to pro-rate the gains vs. the cost basis across all those accounts. So having a mixture of non-deductible and deductible IRA contributions will really screw with your tax situation when you start taking withdrawals or trying to convert them to a Roth. flowinprose fucked around with this message at 16:06 on Jan 5, 2012 |
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Jan 5, 2012 15:58
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flowinprose posted:Just FYI, this is incorrect. If you put non-deductible contributions into a traditional IRA, you do have a cost-basis that is subtracted when you take withdrawals.
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Jan 5, 2012 16:23
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I'm currently keeping around $1500 in an ING Direct account. Just looking around I see that the anemic interest rate I'm getting is in line with what other banks are offering, even credit unions in Chicago. I suppose I could shop around and eke out a slightly higher interest rate i.e., Ally, but then the rates seem to fluctuate and slide all over the place among the "top" places, so it seems ultimately a futile exercise. Is there a reason why banks no longer offer things like 4% interest, or even something that can beat inflation? I, and a lot of others, would dump a ton of money into such an investment vehicle. Even ING Direct back in the day was closer to 5%. What happened?
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Jan 6, 2012 01:09
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Mandals posted:Is there a reason why banks no longer offer things like 4% interest, or even something that can beat inflation? I, and a lot of others, would dump a ton of money into such an investment vehicle. Even ING Direct back in the day was closer to 5%. What happened? Supply and demand. Retail banks are basically involved in two businesses; the first is holding onto account-holders' cash and keeping it secure while providing convenient ways to access it, and the second is by investing in home-buyers, business owners, and other speculative activities. If you open a savings account with a bank, they earn their revenues by lending your money to home-buyers and business owners and charging them interest. They then pay you a small amount to use your cash for this purpose. The difference between what they earn in interest from loans and what they pay you (and their employees, landlords, etc) is their profit. When the economy is doing well and home-buyers and business owners are taking risks that require financing, there is a lot of demand for these loans, so banks can charge higher interest rates (which gives them more revenues). But they need money to lend, so they attract more cash reserves by paying customers like you a higher rate. After all, if the economy is doing well stocks and bonds should be offering a great return, so if the banks were offering a terrible rate you wouldn't have any reason to let them use your cash. When the economy is not doing so well and there is little demand for loans, banks have to lower the rates they charge to lend to attract the few risk-takers out there. This cuts into their revenues, which means they need to cut costs to maintain a profit. They do that by lowering the interest rate which they pay you (or laying off employees, or something). Essentially, in boom years they pay you a higher rate of interest because they need your money to keep lending, and they can afford to do it. In slow years they pay you a lower interest rate because they can't afford it and don't really need your money anyway, since nobody's borrowing. Government also plays a crucial role here, but this is the fundamental reason. Also, ING was able to pay a higher rate than other banks in the past because they have like no overhead.
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Jan 6, 2012 01:44
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I also wouldn't bother putting too much time into researching different banks and going through the process of moving money. Most banks are within a few tenths of a percent of one another so you're looking at like $3 a year or something.
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Jan 6, 2012 01:50
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nelson posted:The entire point of retirement accounts is to let you avoid paying taxes either now or later. You've already avoided the taxes now so just put your investments into a normal taxable account. In a taxable account, capital gains (if you hold for more than a year) are taxed at a reduced rate. Ok, starting to get my head wrapped around this. Should I just get a regular Vanguard account or similar and dump some money in there? Capital gains taxes in Korea are even lower, so maybe I should just do an international fund locally instead and not have to deal with wiring money and fees.
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Jan 6, 2012 01:58
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Mandals posted:I'm currently keeping around $1500 in an ING Direct account. Just looking around I see that the anemic interest rate I'm getting is in line with what other banks are offering, even credit unions in Chicago.
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Jan 6, 2012 02:10
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bam thwok posted:Supply and demand. Retail banks are basically involved in two businesses; the first is holding onto account-holders' cash and keeping it secure while providing convenient ways to access it, and the second is by investing in home-buyers, business owners, and other speculative activities. This was awesome. Thanks for the write-up. Unfortunately, it makes perfect sense now. Banks 
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Jan 6, 2012 02:31
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Momonari kun posted:Capital gains taxes in Korea are even lower, so maybe I should just do an international fund locally instead and not have to deal with wiring money and fees. I don't know anything about Korean financial markets but from what you say it doesn't sound like a bad idea (unless N. Korea decides to go crazy). I guess the safest bet is to keep some money in Korea and some in the US.
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Jan 6, 2012 03:50
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Mandals posted:This was awesome. Thanks for the write-up. Unfortunately, it makes perfect sense now. No problemo. It's obviously more complex than I've suggested, and there's a lot more moving parts. But happy to explain.
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Jan 6, 2012 04:09
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Is there an easy way to figure out how you need to spend your $5,000 IRA contribution to rebalance your portfolio with Vanguard? I make an excel spreadsheet and plug in random numbers until I get it to work, but there has to be an easier way.
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Jan 6, 2012 15:08
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ZeroAX posted:Is there an easy way to figure out how you need to spend your $5,000 IRA contribution to rebalance your portfolio with Vanguard? I make an excel spreadsheet and plug in random numbers until I get it to work, but there has to be an easier way. I found this calculator? http://optimalrebalancing.tk/
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Jan 6, 2012 15:46
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Hi guys, I'm starting a new job next week and I have a question as to what I should do with my 401k from my current employer. Its roughly $2700 sitting almost entirely in a T. Rowe Price 2040 retirement mutual fund with a 1% expense ratio. I'm not sure what I should do with this money. I already have a roth IRA that I am on track to max out next year and almost maxed for 2011. I've heard that rolling your 401k into a trad IRA to preserve the tax deferred status is a common move, but wouldn't this limit the amount of money I can contribute to my roth in 2012 by $2700? I'm not sure if that's desirable for someone of my age (24). Would it make any sense to cash out the 401k and take the tax hit now and put it into my roth? If it's important to note, I don't really have any debts and I will be moving up a tax bracket with the new job. I suppose I could always leave it sitting around, but it would probably be better to have the money with Vanguard because the expense ratios are so much lower than what I'm currently getting. Any advice on how to handle this? Dreadite fucked around with this message at 21:00 on Jan 6, 2012 |
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Jan 6, 2012 20:56
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Dreadite posted:I've heard that rolling your 401k into a trad IRA to preserve the tax deferred status is a common move, but wouldn't this limit the amount of money I can contribute to my roth in 2012 by $2700? e: Yeah, transfer to Vanguard, just double-check the minimums. I think that a lot of funds have mins of 1000, so you should be fine.
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Jan 6, 2012 21:20
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gvibes posted:It does not. I guess the 5k total limit between roth and traditional IRA doesn't apply if you are rolling over a 401k somehow?
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Jan 6, 2012 21:43
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Dreadite posted:I guess the 5k total limit between roth and traditional IRA doesn't apply if you are rolling over a 401k somehow? Correct, rollovers do not apply to contribution limits. You could in the same year contribute $17k to a 401k, rollover $50k from a 401k to a traditional IRA, and contribute $5k to a traditional and/or Roth IRA.
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Jan 6, 2012 22:18
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Daeus posted:How old are you? If you're under 40, you really want to be seeing a down market so your contributions now are buying more for less. Everyday I am hoping and silently cheering for the market to tumble. I don't know if I'm reading this graph correctly and I'd appreciate any comments. Link If I'm reading this right in the past if you were buying in a bear market it would take 20 or 30 years for your stocks to be equal roughly to what you bought it at. Unless you bought in the oil shock or 1987 crash you'd be lucky to get a return on your investment in 20 years. Edit: I'm guessing you just manage it by moving out of stock during the nearest bull market to retirement? BCR fucked around with this message at 08:50 on Jan 8, 2012 |
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Jan 8, 2012 08:43
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There was another graph comparing what kind of returns you'd have gotten depending upon when you entered the market and when you exited going back to just prior to the Depression. The results were pretty lovely. However, the graph was almost purely based around stocks and in your retirement portfolio you should be diversified and hopefully using some tactic like dollar cost averaging to spread around some downside risks.
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Jan 8, 2012 15:59
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necrobobsledder posted:There was another graph comparing what kind of returns you'd have gotten depending upon when you entered the market and when you exited going back to just prior to the Depression. The results were pretty lovely. However, the graph was almost purely based around stocks and in your retirement portfolio you should be diversified and hopefully using some tactic like dollar cost averaging to spread around some downside risks. I think this is the chart you're referring to. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html
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Jan 8, 2012 16:13
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BCR posted:I don't know if I'm reading this graph correctly and I'd appreciate any comments. Investing in stocks carries considerable risk even on long timelines. Most people ignore that and are of the belief that stocks are safe if you hold them long term. Also, even though most people know that "past results are not predictors of future performance" they still latch on to the idea that "stocks returned 10% the last x years, so they'll have to if I hold them until retirement."
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Jan 8, 2012 16:51
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I'm unlikely to be able to contribute to a Roth IRA in 2012 due to AGI limitations. I'm reading more about this backdoor Roth IRA business, but I have an existing traditional IRA that is 100% funded from a previous employer's 401k rollover. I have no intentions of converting this traditional IRA to a Roth IRA. If I roll this traditional IRA into my current employer's 401k now, will I be able to fund a backdoor Roth in late 2012 or will I have to wait until 2013? Also a side question, will most 401k plans stop contributions at the annual contribution limits? If for example I make $75,000 and contribute 50% to 401k, will that stop when contributions reach $17,000 this year?
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Jan 8, 2012 18:12
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Vomik posted:Also, even though most people know that "past results are not predictors of future performance" they still latch on to the idea that "stocks returned 10% the last x years, so they'll have to if I hold them until retirement." What I hate about stocks is that the more people invest in them before you do, the worse their returns will be for you. This is most relevant due to 401ks broadening the base of ownership. We also get the double bonus that as baby boomers draw down their 401ks for retirement stock prices will go down. This might not be a bad thing if it just falls off a cliff and stays there, but more likely it will just mean many years of low growth. Compounding this, super low interest rates and possible inflation concerns don't make bonds a good option either. So low returns are probably going to be the norm going forward. It's not all gloom and doom though. The 2008 crash and the current European crisis have scarred a lot of people out of stocks so that part is good if you're buying right now. Possibly even better if you are holding cash and Europe falls off the map.
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Jan 8, 2012 18:36
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BnT posted:Also a side question, will most 401k plans stop contributions at the annual contribution limits? If for example I make $75,000 and contribute 50% to 401k, will that stop when contributions reach $17,000 this year? e: Not sure what happens when you switch jobs mid-year or something. gvibes fucked around with this message at 20:40 on Jan 8, 2012 |
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Jan 8, 2012 20:36
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gvibes posted:e: Not sure what happens when you switch jobs mid-year or something.
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Jan 8, 2012 23:17
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