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monster on a stick posted:
Yeah, that last article makes some big assumptions. Muni's are a different breed of investment. In a state with no income tax like Texas, where I live, you have to look at them differently since not paying state taxes is one of the big advantages of Muni's in states that tax. Texas Muni's usually have higher yields to make them more attractive but I haven't found many good ones, and out of state Muni's usually price in the tax break. In today's bull market, however much longer it runs, a fund like VSTAX makes perfect sense for taxable savings since the tax impact is minor, at best, it's low maintenance, and the returns are very good. When the Bear decides it's time to hibernate some overbalancing may be in order, though I rode out the last recession in my index funds and came out ahead in the end, or at least not damaged.
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Jun 14, 2017 20:13
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All this hate against HMOs makes me think I'm lucky. It is a one stop shop where I don't need to worry about anything other than my co-pays. I have called an advice nurse about something that I thought was urgent, but not ER worthy. They then scheduled me for a same day appointment with not my primary doctor, but another in the same office. I then went downstairs to get some lab work done and picked up my prescription just a couple doors down. All in about an hour. I don't have to worry if every provider along they way accepts my insurance. I have an aquantance who went through a surgery only to find out after the fact that the anesthesiologist didn't accept her insurance.
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Jun 14, 2017 20:44
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CopperHound posted:All this hate against HMOs makes me think I'm lucky. It is a one stop shop where I don't need to worry about anything other than my co-pays. I have called an advice nurse about something that I thought was urgent, but not ER worthy. They then scheduled me for a same day appointment with not my primary doctor, but another in the same office. I then went downstairs to get some lab work done and picked up my prescription just a couple doors down. All in about an hour. I don't have to worry if every provider along they way accepts my insurance. Some people love the DMV too because the one they use is an anomaly run efficiently by the state staffed by happy public sector employees. It does happen. Anesthesiologists are notorious for being the "surprise" element of a surgery bill. Last time I had ear surgery they popped in last minute, while I was on the bed waiting to be rolled in, and had a bunch of paperwork for me to sign. All completely separate from the entire process I went through before I went in related to billing. As it turned out I quickly discovered they took my insurance (by literally calling my company from the bed, an IV already running) but if they hadn't and I requested a new one it would have thrown the whole process off. The way they work is seriously hosed. It's so bad that my state (Texas) has a free arbitration service for "surprise" Anesthesiologist bills - and it is *specific* to Anesthesiologists which tells you everything right there - for bills over $1k. The normal result of that is for the Anesthesiologist office to immediately drop said bill to under 1k, even if they were originally charging 3-4k. And make it seem like they are doing you a favor. It is, in other words, a legal racket.
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Jun 14, 2017 21:11
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I'm an anesthesiologist. We're not the "notorious surprise" of a surgery bill, you just don't stop to think that you'll be under the care of more than one physician when receiving surgery, because you have no idea what a miracle it is that we can render the human body safely and reliably unconscious despite myriad physiologic and pharmacologic derangements and deliver an insensate, amnestic, akintetic corpse to the surgeon to ply their craft while you feel and remember nothing. Literally it might as well be witchcraft to our average customer. "The way they work is seriously hosed."  if you don't like it, try getting major surgery whilst fully conscious.Nobody is obfuscating these charges to you, and they do you the enormous courtesy of negotiating your costs down if you don't have insurance coverage and you've got the nerve to belittle what we do and what we charge for it because you can't be bothered to understand the first thing about how surgery works? EAT FASTER!!!!!! fucked around with this message at 21:31 on Jun 14, 2017 |
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Jun 14, 2017 21:28
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EAT FASTER!!!!!! posted:I'm an anesthesiologist. We're not the "notorious surprise" of a surgery bill, you just don't stop to think that you'll be under the care of more than one physician when receiving surgery, because you have no idea what a miracle it is that we can render the human body safely and reliably unconscious despite myriad physiologic and pharmacologic derangements and deliver an insensate, amnestic, akintetic corpse to the surgeon to ply their craft while you feel and remember nothing. ...no, it's not the multiple physicians thing, it's the "if the hospital accepts my insurance, I'd assume that all the people treating me will" thing.
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Jun 14, 2017 21:31
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silvergoose posted:...no, it's not the multiple physicians thing, it's the "if the hospital accepts my insurance, I'd assume that all the people treating me will" thing. Hospitals would love to structure payments this way, because they could rob the anesthesiologists and surgeons of our professional fee as well as collecting the facility fee, but thankfully that's not yet the way it works.
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Jun 14, 2017 21:34
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EAT FASTER!!!!!! posted:Hospitals would love to structure payments this way, because they could rob the anesthesiologists and surgeons of our professional fee as well as collecting the facility fee, but thankfully that's not yet the way it works. Really we just need single payer. Regardless, this ain't a discussion about long-term investing, other than "save up a lot of money in case the healthcare system in the us fucks you".
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Jun 14, 2017 21:37
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EAT FASTER!!!!!! posted:I'm an anesthesiologist. We're not the "notorious surprise" of a surgery bill, you just don't stop to think that you'll be under the care of more than one physician when receiving surgery, because you have no idea what a miracle it is that we can render the human body safely and reliably unconscious despite myriad physiologic and pharmacologic derangements and deliver an insensate, amnestic, akintetic corpse to the surgeon to ply their craft while you feel and remember nothing. Calm down chief. I'm not bagging on anesthesiologists or what they do. I'm relating my own personal experience dealing with the billing end of it, which, *whoever may be to blame for it* is confusing for patients in the end. To go through the entire billing process - which is hosed enough as is - before and on the day of surgery, and then go through an entirely separate one right before said surgery commences, at a time when the patient is thinking about a great many other things, is stupid no matter what you think of it. I have experienced this twice with myself as the patient and once with my wife. Texas really does have an arbitration process for dealing with the experience. These are facts. It's dumb in the end no matter how it came to be or why. Appreciate the job you and your medical brethren do; that is different. Don't take it personally.
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Jun 14, 2017 21:55
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I already max out my 401k, my Roth IRA and have 6 months emergency savings. Should I max out my HSA next if I'm looking for things to do with my money? (I'm on a HDHP 4 life) If so, what do I do with that money assuming I don't actually have any medical expenses today? How can I use it in the future and how do I choose how it's invested?
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Jun 14, 2017 22:14
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Ixian posted:Appreciate the job you and your medical brethren do; that is different. Don't take it personally. silvergoose posted:Really we just need single payer. Regardless, this ain't a discussion about long-term investing, other than "save up a lot of money in case the healthcare system in the us fucks you". Thanks! Sorry, I got defensive!
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Jun 14, 2017 22:16
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dexter6 posted:I already max out my 401k, my Roth IRA and have 6 months emergency savings. Should I max out my HSA next if I'm looking for things to do with my money? (I'm on a HDHP 4 life) Example: I have an HSA who is brokered by Optum. Once I get up to $1,000 in my Optum account, I can choose to automatically have further contributions shuffled off to my investment account (also through Optum). I get to choose what from their brief and expensive selection of funds I want to have my investment contributions put towards. If I spend money from my HSA, investment funds are automatically sold to return my primary account to $1,000. You can also choose to transfer your HSA money to your own personal HSA account held by a different company, which is something I'll be needing to do when I have more than a pittance locked up in it. This is ideal if your fund choices are dogshit, like mine. Hoodwinker fucked around with this message at 22:24 on Jun 14, 2017 |
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Jun 14, 2017 22:20
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dexter6 posted:I already max out my 401k, my Roth IRA and have 6 months emergency savings. Should I max out my HSA next if I'm looking for things to do with my money? (I'm on a HDHP 4 life) Hoodwinker covered it. Invest it, even xfer it out once you have enough (call it 5-10k or whatever) to a better plan if you have a dogshit one at the company. If they offer a seed/match make sure you keep enough to get that every year. I'm lucky to have an HSA through my company that offers great funds, including Vanguard, and no expenses but that isn't always the case. At 65 it turns into a regular IRA, basically. However if you are like most of us you will probably find no end of ways to spend it on qualified medical expenses over your lifetime. Remember the money doesn't "expire" like an FSA and the account is yours no matter what company you work for.
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Jun 14, 2017 22:58
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Should also add that some companies, like mine, also offer a "limited use Flex Spending Account" for HDHP/HSA participants. These are somewhat arcane but worth checking in to. This is an FSA that can only be used for qualified dental and vision expenses. Why contribute to one of these? Since those two health related expenses are both distinct and separate insurance add ons anyway, and because having an HSA disqualifies you from a "normal" FSA, these types of plans give you a way to put additional tax-exempt (not deferred, completely exempt) dollars towards vision and dental, so you can save the money in your HSA for "regular" medical expenses outside of those. Most limited FSAs are only available if you have an HDHP/HSA in the first place. They are subject to the normal FSA rules - the money is meant to be spent in the year you contribute (though many companies will now allow you to "roll over" a small amount, like $500, to the following year), you lose unspent amounts outside of that at the end of the year or if you leave your employer before it is spent at any time, and you can only adjust the amount during your open-enrollment period each year. However, if you have something planned like major tooth surgery, or braces (which many dental plans only partially cover if at all) or lasik (which most insurance doesn't cover at all) or whatever they are a great way to spend tax-exempt dollars on them whilst keeping your HSA intact and letting the investment there grow. If you make enough W-2 wise they are also yet another way to reduce your MAGI/AGI for tax purposes, and there's no income limit either. And like regular FSA accounts once you commit to doing it the entire amount you commit to (say, $2550/y, which is the max) is available immediately, right up front. Which is not the case for an HSA, where you can only spend what is actually in your account. Just bringing it up because if you have the option and think you will have the expenses they aren't a bad idea and a way to get, at the max, another $2550 in tax-exempt money.
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Jun 14, 2017 23:12
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Ixian posted:And don't forget post-tax savings. One trick I learned years ago and still do today is to set up automatic withdrawals for savings, keeping enough in checking to cover bills and such. Then I funded my savings account to hold at least 6 months in expenses + my fun fund, which I use whenever we want to go on vacation or buy a new TV or whatever. The rest goes to my mutual funds.
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Jun 15, 2017 23:41
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Ralith posted:This is a great tactic. You can often even set up a portion of your pay to direct-deposit into a Vanguard account where it auto-invests, so it never hits your checking account at all. Bump it up proportionately every time you get a raise and lifestyle inflation becomes much less of a danger. That's actually what I do today since my Oh gently caress savings is fully funded. Occasionally I'll manually move more cash in to savings if I have a vacation planned or there's some new dumb VR headset coming I can waste my money on but almost all my post-tax savings today go to one of two places - my mutual funds, and my company stock purchase plan (5% discount and it's a solid blue chip stock). The recent Muni discussion reminded me to look at those (Muni) again particularly when it comes to more liquid savings. I've been tinkering for a while with the idea of going with a no-load Muni fund instead of a savings account for backup expenses and major purchases. Vanguard as usual seems to have the best one for individual investors (VWLTX, and there's an Admiral variant). That fund has about 900 high quality Muni's with an average maturation of 7 years. As with any Muni the growth and return is tax-free, one of the few non-retirement vehicles that allow such. Right now it is 3.66% but Muni interest is fairly volatile. Also, with Muni's you should calculate in your effective tax rate to get the true rate of return - with mine, it works out to 5.6% (meaning a comparable rate in a taxable fund). They are pretty low risk, but not no risk. It's extremely rare for your principal to be at risk (Muni's do default or retrade, but it's rare and the risk is well spread in the Vanguard fund). Most of the volatility comes from the rate of return interest, since Munis are sensitive to Fed rate changes, inflation, and general dickiery. However, when put up against your average savings or CD any rate of return is better than no (effective) rate of return. The nice thing about a no-load fund like Vanguard is it is easy and cost-free to take money out of it when you need it. You can transfer cash to your bank in 24 hours usually and Vanguard doesn't charge fees for that. Long story short that fund doesn't look like a bad investment vehicle for diversification purposes but I'm wondering if it is worth the very small risk to hold rainy-day funds as well as investments. Someone feel free to weigh in. I can tolerate some amount of risk here.
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Jun 16, 2017 02:37
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Quick question - I left a job last year at which I had a $25k 401K. I'm rolling it over into a Vanguard Roth IRA - I'm at the last step, the cash is in the rollover IRA account and ready to be converted to the Roth IRA. But it wants me to decide if I want to withhold money for taxes at this point - I don't know how much the taxes would be if I elect not to, so I'm not really sure what to do. If skipping withholding lets me keep more in the Roth IRA, I'd like to do it, but I can't find any info on how much I'll get taxed or how much the withholding might be in this case.
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Jun 16, 2017 05:26
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Rotten Red Rod posted:Quick question - I left a job last year at which I had a $25k 401K. I'm rolling it over into a Vanguard Roth IRA - I'm at the last step, the cash is in the rollover IRA account and ready to be converted to the Roth IRA. But it wants me to decide if I want to withhold money for taxes at this point - I don't know how much the taxes would be if I elect not to, so I'm not really sure what to do. If skipping withholding lets me keep more in the Roth IRA, I'd like to do it, but I can't find any info on how much I'll get taxed or how much the withholding might be in this case. Any amount that is withheld for tax will be counted as an early distribution and subject to the 10% penalty in addition to normal income taxes. For conversions, you generally want to pay the taxes with money from outside the account to avoid this. Your tax is pretty much your marginal tax bracket multiplied by $25k; it could be higher if part of that $25k sneaks into the next tax bracket.
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Jun 16, 2017 07:24
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Yeah unless you have a well thought out reason to convert it to Roth I would probably just roll a 401k into a regular IRA and not have to worry about the taxes.
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Jun 16, 2017 14:26
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Ixian posted:That's actually what I do today since my Oh gently caress savings is fully funded. Occasionally I'll manually move more cash in to savings if I have a vacation planned or there's some new dumb VR headset coming I can waste my money on but almost all my post-tax savings today go to one of two places - my mutual funds, and my company stock purchase plan (5% discount and it's a solid blue chip stock).
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Jun 16, 2017 14:28
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Rotten Red Rod posted:Quick question - I left a job last year at which I had a $25k 401K. I'm rolling it over into a Vanguard Roth IRA - I'm at the last step, the cash is in the rollover IRA account and ready to be converted to the Roth IRA. But it wants me to decide if I want to withhold money for taxes at this point - I don't know how much the taxes would be if I elect not to, so I'm not really sure what to do. If skipping withholding lets me keep more in the Roth IRA, I'd like to do it, but I can't find any info on how much I'll get taxed or how much the withholding might be in this case. Convert it to a regular IRA would be my advice in this situation. There are good reasons to have Roth vs. regular in many situations but I suspect this isn't one of them. If you want to do it you need to calculate your effective tax rate for the year. This isn't the tax bracket you are in, which is a marginal rate. If you had a tax service do last years taxes or used something like Turbotax that should tell you what your effective rate was then. Don't forget state/local if you pay those as well. Then you pay that up front. You will need to pay it with outside post-tax money and you'll probably be a little surprised how much it is on 25k. Like I said, probably not worth it for the trade off, but like anything related to Roth it comes down to the net present value of a dollar for you today vs. retirement.
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Jun 16, 2017 15:12
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I need someone to double check my dad's retirement/investment approach. I talked to him about what I should do with the money I'm saving up. He says that index and mutual funds are not the options I should go for, and that the best way to make my money work for me is to start a life insurance policy. Something about contributing to it while I'm young would yield better results than putting it in a mutual fund, and it's what he's doing to help us kids with finances further down the road. This advice goes against what I've typically heard (e.g. If You Can), which is to leverage mutual/index funds and then don't touch it. I feel safer doing that, though I don't know ow where to start yet. Honestly, I just wanna know what the smartest yet most reliable thing to do with my savings is. Keep in mind that this is the same guy who keeps bugging me to get into HFT and is kinda weird about gold and silver, so I'm a bit wary of his financial/investment advice. I just don't want him to do something stupid with his money.
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Jun 16, 2017 16:29
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Pollyanna posted:Keep in mind that this is the same guy who keeps bugging me to get into HFT and is kinda weird about gold and silver, so I'm a bit wary of his financial/investment advice. I just don't want him to do something stupid with his money. Your dad is an idiot and you should never listen to anything he says. You will also never convince him to change the way he thinks about anything and I wouldn't bother trying if I were you.
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Jun 16, 2017 16:35
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Pollyanna posted:I need someone to double check my dad's retirement/investment approach. I talked to him about what I should do with the money I'm saving up. He says that index and mutual funds are not the options I should go for, and that the best way to make my money work for me is to start a life insurance policy. Something about contributing to it while I'm young would yield better results than putting it in a mutual fund, and it's what he's doing to help us kids with finances further down the road.
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Jun 16, 2017 16:40
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Pollyanna posted:I need someone to double check my dad's retirement/investment approach. I talked to him about what I should do with the money I'm saving up. He says that index and mutual funds are not the options I should go for, and that the best way to make my money work for me is to start a life insurance policy. Something about contributing to it while I'm young would yield better results than putting it in a mutual fund, and it's what he's doing to help us kids with finances further down the road. Insurance and investments are opposites. When you buy insurance, you're paying somebody else to take on an unlikely risk*. When you invest, you're exposing your capital to some level of risk, with a likely return. Products like "whole life" and "universal life" try to be both insurance and investment, and aren't good at either. They're typically sold by "financial advisers" who are paid by commission on the products they sell. Outside of exotic tax-shelter scenarios for wealthy clients, nobody else would recommend them. Unfortunately, you're probably not going to be able to convince your dad. The people who sell whole life-type products have whole spiels ready to go for what happens when a family member says, "so, why not just invest in a risk-tolerance-balanced portfolio of stock and bond funds?" He's got massive literal and figurative sunk costs here, and someone already whispering in his ear about trusting seasoned professionals rather than kids. *For life insurance in particular, it's worth remembering that the risk it covers isn't "you die," because that is going to happen no matter what. Life insurance protects you against dying early, before the kids' college fund is paid up or whatever.
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Jun 16, 2017 17:03
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Ancillary Character posted:Any amount that is withheld for tax will be counted as an early distribution and subject to the 10% penalty in addition to normal income taxes. For conversions, you generally want to pay the taxes with money from outside the account to avoid this. Your tax is pretty much your marginal tax bracket multiplied by $25k; it could be higher if part of that $25k sneaks into the next tax bracket. I was under the impression I wouldn't be subject to the 10% early distribution penalty because it's a rollover, though...? I'm going to call Vanguard and ask them about the specifics.
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Jun 16, 2017 17:17
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Rotten Red Rod posted:I was under the impression I wouldn't be subject to the 10% early distribution penalty because it's a rollover, though...? I'm going to call Vanguard and ask them about the specifics. You should not be subject to any taxes or penalties for rolling money from a 401k to an IRA. If you want to convert traditional IRA money to Roth, you'll need to pay ordinary income rates on that, but there should not be any penalties by the nature of the transaction. Taking money from your IRA to pay any expenses before you retire, including this year's taxes, is an early distribution and is subject to penalties. So you'll want to pay the extra taxes out of pocket.
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Jun 16, 2017 17:26
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Rotten Red Rod posted:I was under the impression I wouldn't be subject to the 10% early distribution penalty because it's a rollover, though...? I'm going to call Vanguard and ask them about the specifics. You are correct in that there is no 10% early withdrawal penalty if the funds move from a Traditional IRA to a Roth IRA in a 60-day window. Vanguard will tell you this (call them anyway). You are however on the hook to pay the income *taxes* on the amount which if it comes out of the IRA you are transferring from is penalized. You need to cover that with post-tax income, I believe. Edited: Messed something up, corrected. Ixian fucked around with this message at 17:33 on Jun 16, 2017 |
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Jun 16, 2017 17:30
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Space Gopher posted:You should not be subject to any taxes or penalties for rolling money from a 401k to an IRA. See, that's what I thought. Wouldn't I be best off paying the taxes now by converting it to a Roth? I'd just like to know how much in taxes to expect to pay.
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Jun 16, 2017 17:30
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Rotten Red Rod posted:I was under the impression I wouldn't be subject to the 10% early distribution penalty because it's a rollover, though...? I'm going to call Vanguard and ask them about the specifics. You paid no taxes on your (non-Roth) 401k income when it was invested. You're now trying to put it into a Roth account, which pays no taxes on distribution. The concept behind both IRA and Roth IRA is that they're only taxes on one end, not the other. If you could convert from regular IRA/401k to a Roth with no taxes, you'd never pay taxes on that income at all (front or back end). That's why the conversion is taxed. It has nothing to do with early withdrawal (because it's a rollover). Edit: woops, just saw your reply. I guess you understood that. Sorry.
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Jun 16, 2017 17:32
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Just called Vanguard, and between what they told me and what I've read here, I'm pretty set on converting it to a Roth (and NOT withholding taxes from it when I do). I'm just going to check with my tax guy to see how much I can expect to pay on my 2017 taxes for this first. It seems worth it to me to not have to pay taxes when I withdraw it, since I expect to grow this account a lot.
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Jun 16, 2017 17:38
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Rotten Red Rod posted:See, that's what I thought. Wouldn't I be best off paying the taxes now by converting it to a Roth? I'd just like to know how much in taxes to expect to pay. If you can pay the taxes out of pocket, you want these as Roth funds, and you expect your income and the market to go up, you are best off converting to a Roth earlier. Just to be very clear about this, "out of pocket" does not mean "with money withheld from your IRA". If you withhold money from your IRA for taxes, that is a distribution. If you can only pay the taxes through withholding, it's very likely that the penalties will outweigh any gains you'd make during the time it would take to save the tax bill. Ancillary Character explained how to calculate this. Finally, keep in mind that there's really nothing wrong with traditional IRAs unless you're bumping up into the income cap. Roth is a little bit more flexible in dire "oh dear god, I have to dip into retirement savings to eat and avoid homelessness" situations, and it effectively has a higher annual contribution cap (because 5,500 already-taxed dollars are worth more than 5,500 dollars with a tax bill attached), but it's not a slam dunk. As long as you don't have to backdoor Roth contributions, it's not a terrible move to leave it as traditional while you figure things out or save up tax money. Mathematically, Roth and traditional are equivalent as long as tax rates stay the same and the market goes up more-or-less steadily.
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Jun 16, 2017 17:39
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Space Gopher posted:If you can pay the taxes out of pocket, you want these as Roth funds, and you expect your income and the market to go up, you are best off converting to a Roth earlier. Just to be very clear about this, "out of pocket" does not mean "with money withheld from your IRA". If you withhold money from your IRA for taxes, that is a distribution. Thanks, that pretty much confirms what I understood. And yes, I won't be withholding anything from the IRA - Vanguard told me that technically breaks the rules to do anyway (they actually force you to call them if you want to withhold taxes on the conversion). I can afford to pay whatever taxes I incur with my savings. I don't have anything against traditional IRAs, and I actually expect to maintain an IRA in addition to the Roth for any amount over the $5500 yearly limit I can afford to put in. I just like paying the taxes up front better, makes me feel more secure that I'm going to get all the money back that I actually see in the account.
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Jun 16, 2017 17:49
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Droo posted:Your dad is an idiot and you should never listen to anything he says. You will also never convince him to change the way he thinks about anything and I wouldn't bother trying if I were you. Hoodwinker posted:Your dad is super wrong. Read every book mentioned in "If You Can" (I've done it myself and so this is a recommendation from direct experience) and ignore any advice he tries to give you. Reading those books should give you a good starting point to explain to him why he is wrong, which you are certain to be cornered to do at Thanksgiving, Christmas, and at the birth of each of your children. Space Gopher posted:Insurance and investments are opposites. When you buy insurance, you're paying somebody else to take on an unlikely risk*. When you invest, you're exposing your capital to some level of risk, with a likely return. I'm really worried, now. I don't want him to get scammed by capitalists and assholes and lose all the retirement savings that he and my mom have built up over time. I know full well that I can't change his mind on basically anything (he's stubborn as gently caress), but this sounds dire and I really don't wanna end up in a position where I'm paying for their retirement, too.  I'm gonna have to watch what he's doing very very closely.
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Jun 16, 2017 18:00
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Pollyanna posted:I'm really worried, now. I don't want him to get scammed by capitalists and assholes and lose all the retirement savings that he and my mom have built up over time. I know full well that I can't change his mind on basically anything (he's stubborn as gently caress), but this sounds dire and I really don't wanna end up in a position where I'm paying for their retirement, too.
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Jun 16, 2017 18:03
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If your dad is saving money (at all) then I wouldn't be too worried. Those life insurance people are selling an inferior investment product, but it's still one that works. The hardest part of saving is not spending. If your dad has that part down, you're not in bad shape. It's worth a shot to show him the 40-year history of the S&P vs his life insurance investment, but if he's adamant about his own choices... whatever.
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Jun 16, 2017 18:14
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Ok so now I feel like an idiot re: backdoor Roth IRAs. Like, they are pretty simple, but my head just didn't get wrapped around the point of them until the simplicity smacked me in the face today talking to my Vanguard advisor (we hold enough with them to get their dedicated support). Basically, for the last few years I've been putting the max $5500 in to my regular IRA even though I am well over the income limit for tax deductions. Thus that money has been post tax but I figured, dur-deh-hur, better my IRA grows anyway. Suddenly it smacked me in the face that this is exactly what a backdoor Roth is for. I am also well over the income limit for regular Roth contributions, but since the law changed a few years ago there's nothing stopping me from putting that money in my traditional IRA then converting it. Then at least I don't get taxed on the growth or withdrawals. Vanguard explained I can do this every year and that it is actually pretty simple. They were very friendly and polite and I could also detect a slight "you dummy" going on in his head though maybe that was just me ("you dummy" was definately going through my head). So, sharing for others. I'm glad I finally figured this out. What I can't figure out is why the tax laws are so loving convoluted. Roth IRAs have income caps for contributions, but anyone who takes 5 minutes to have it explained can do a regular end-run around it? How does this make any sense?
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Jun 16, 2017 18:47
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Ixian posted:What I can't figure out is why the tax laws are so loving convoluted. Roth IRAs have income caps for contributions, but anyone who takes 5 minutes to have it explained can do a regular end-run around it? How does this make any sense?
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Jun 16, 2017 18:51
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Hoodwinker posted:Because rich white men with horses wrote the tax law and they certainly aren't in a hurry to fix something that tremendously benefits them. Real answer: tax law has been cobbled together over so many years and it's about as messy as any legacy software application. It's how these things tend to go. There's no impetus to remove the backdoor and so it stays. Lack of impetus to remove it and plenty to keep it - it was only made in to law a few years ago, and with our current administration I don't see it going away soon. Obama proposed eliminating it in 2016 but that got shot clear out of the sky. It gets more unreal the more I learn about it. Roth's were purposely set up to keep wealthy people from getting yet another way around taxes, then the law changes to what is for all intents and purposes a wink and a nod. There's no real limit on how much you put in one as long as you first put money in a traditional IRA then pay taxes on what you convert. I shouldn't be one to complain (and really, I'm not) because while I'm not a yacht owner I am one of the beneficiaries of this policy but...God the tax code sucks. Oh well, another investment type to juggle. Life could be a lot worse.
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Jun 16, 2017 18:59
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Rotten Red Rod posted:I don't have anything against traditional IRAs, and I actually expect to maintain an IRA in addition to the Roth for any amount over the $5500 yearly limit I can afford to put in. I just like paying the taxes up front better, makes me feel more secure that I'm going to get all the money back that I actually see in the account. I think you may have a misunderstanding on how this works. What do you mean you'll maintain a traditional IRA above the $5500 limit? That limit applies to both Roth and traditional IRAs collectively, so there is no tax advantage to contributing to an IRA above $5500/year. 401k limits are separate, and sometimes have a Roth option, which may be part of the confusion, but that is all tied up with your employer. Based on what you've posted, my impression is that you probably shouldn't bother with the Roth conversion right now.* There is no inherent advantage to a Roth over traditional. As was mentioned earlier the math works out the same as long as the tax rate is the same going in and coming out. It is impossible to predict the future, so you can't say what your tax rate will be at retirement; I think its a good idea to have a mix of both Roth and traditional. If I were you I would just roll over into a traditional IRA and not worry about it. You can always do the conversion later. *Assuming you aren't going to have an unusually low tax burden this year. You didn't just get off a 6 month sabbatical or anything, right?
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Jun 16, 2017 19:01
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Had my first phone call with Vanguard personal advisors since I started saving 20 years ago. Received my recommendations for 90 stock/10 bond. They want me to get out of vanguard health care though. 😖. I've been in it since I started my IRA. Great experience and worth the 0.3 they're charging me. Their recommendations account for my TSP and wife's 403b too, but they only charge on Vanguard assets.
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Jun 16, 2017 19:13
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