Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Hi everyone. I am not much for thinking about money. I find investment discussions boring generally (no offense but the financial language makes my drain drift) and have put very little thought into preserving money in the past. I am now in my 40s and have a couple elementary-school-aged kids. I think it is time to stop ignoring the need to plan. Right now we have money in employee retirement plans but little else.
Anyway, my wife an I are not high earners but tend to teeter along the line of the Roth threshold. In 2017, our income exceeded the maximum for Roth. This year, it will be close but probably will fall within the permissible amounts for Roth. Anyway, we do have some cash ($50k) in a bank account that we would like to put somewhere in hopes of generating interest/appreciation but also in a way that it will be accessible if needed for college tuition. I have thought about a Roth IRA. If necessary, we could try to backdoor it. would doing the backdoor approach allow us to circumvent the annual contribution limit? Would it make sense for college savings when that money would be due before retirement age? Does a general brokerage account make more sense? Thanks
Also, a new thought crossed my mind. Even if the tuition was due before retirement age, it might make sense to co-sign loans if the interest rate is less than the potential return on investment from the Roth and wait until retirement to take the money tax free and pay off the loans. Is that reasonable? Sorry, I am financially challenged.
If you have financial planning advice at work it might pay to have a review done. If not hiring a planer by the hour for a few pointers might help.
I like the ROTH option and the backdoor is also ok. You can not exceed the annual cap. What I like about the ROTH is you can take out your original contribution at any time without any penalties. There is a rule that the IRA has to be open for five years so go to the IRS site and make sure the 5 year rule does not apply. I think the ROTH is also good for your emergency fund since you can take your contribution back out.
Remember the ROTH is a wrapper. If you are investing for the emergency fund then short term CD's might be the way to go. For college some stock ETF's in elementary school and then toward some short term bond funds or CD's. If retirement then ETF in stock funds.
You will find out that money will be hard to come by in retirement so you better learn what to do now so you can support yourself and not have to have your kids do it.
If you have financial planning advice at work it might pay to have a review done. If not hiring a planer by the hour for a few pointers might help.
I like the ROTH option and the backdoor is also ok. You can not exceed the annual cap. What I like about the ROTH is you can take out your original contribution at any time without any penalties. There is a rule that the IRA has to be open for five years so go to the IRS site and make sure the 5 year rule does not apply. I think the ROTH is also good for your emergency fund since you can take your contribution back out.
Remember the ROTH is a wrapper. If you are investing for the emergency fund then short term CD's might be the way to go. For college some stock ETF's in elementary school and then toward some short term bond funds or CD's. If retirement then ETF in stock funds.
You will find out that money will be hard to come by in retirement so you better learn what to do now so you can support yourself and not have to have your kids do it.
Thanks. Not being able to get around the cap makes me think I might be better off just opening a brokerage account. Capital gains of 15 percent are not the end of the world. You are right about retirement. My wife's employer is phasing out her pension plan (defined benefits plan) and switching to a 401K. She is grandfathered in so she will at least get something. That's better than I have.
I am not familiar with ETFs but it looks similar to an index fund. Correct?
Thanks. Not being able to get around the cap makes me think I might be better off just opening a brokerage account.
No, what you ought to do is first max out the Roth IRA. Then any additional savings can go in a taxable account. Over many years, the tax drag on a taxable account versus a retirement account is quite significant, so always fill up the tax-favored accounts first.
An ETF is a bundle of stocks that trades as as if it is a single stock share, so its price can vary throughout the day and it can be bought and sold at any time. A mutual fund, on the other hand, sells for whatever the price is at the end of the day. They're similar enough that it doesn't matter much which you choose to invest in. And not all ETFs are index funds,just like all mutual funds aren't index funds, so check first before you buy!
Hi everyone. I am not much for thinking about money. I find investment discussions boring generally (no offense but the financial language makes my drain drift) and have put very little thought into preserving money in the past. I am now in my 40s and have a couple elementary-school-aged kids. I think it is time to stop ignoring the need to plan. Right now we have money in employee retirement plans but little else.
Anyway, my wife an I are not high earners but tend to teeter along the line of the Roth threshold. In 2017, our income exceeded the maximum for Roth. This year, it will be close but probably will fall within the permissible amounts for Roth. Anyway, we do have some cash ($50k) in a bank account that we would like to put somewhere in hopes of generating interest/appreciation but also in a way that it will be accessible if needed for college tuition. I have thought about a Roth IRA. If necessary, we could try to backdoor it. would doing the backdoor approach allow us to circumvent the annual contribution limit? Would it make sense for college savings when that money would be due before retirement age? Does a general brokerage account make more sense? Thanks
If you are bumping against the Roth cap you are fairly high income. Especially with contributing to a 401k.
The Roth cap can easily be gotten around by contributing to a traditional IRA but due to your income it won't be deductible. This is fine. You then convert to the Roth IRA after the money hits your account (takes a few days).
As of now you can park 2x$5500 and 2x$6000 or $23,000 of your $50k funds in the Roths. If you want it to remain accessible just keep it in the core account but you really need to get your money working for you.
Stop worrying about your kids college funds and start worrying about your own !
What is your total financial picture like? Assets/what kind and liabilities? Ie what's your balance sheet look like and what does your monthly income/expense look like? How much can you contribute? Will it be enough or do you need to make cuts? Etc. In other words, this is more of a personal finance situation to begin and should evolve into investing after that is cleaned up.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,080 posts, read 7,523,914 times
Reputation: 9814
Quote:
Originally Posted by Drooper
Thanks. Not being able to get around the cap makes me think I might be better off just opening a brokerage account. Capital gains of 15 percent are not the end of the world. You are right about retirement. My wife's employer is phasing out her pension plan (defined benefits plan) and switching to a 401K. She is grandfathered in so she will at least get something. That's better than I have.
I am not familiar with ETFs but it looks similar to an index fund. Correct?
Unless you are a very good investor (taxable brokerage) you will discover that capital losses can play to your advantage.
If you are bumping against the Roth cap you are As of now you can park 2x$5500 and 2x$6000 or $23,000 of your $50k funds in the Roths.
A bit of clarification on the above. Both you and your spouse can open a Roth IRA; that’s why wheelsup is multiplying those figures by two. And if you’ve not made contributions for 2018, it’s not too late; you can do that until April 2019. So each of you could put a $5,500 2018 contribution and a $6,000 2019 contribution into your individual Roth IRAs. The result is that almost half the money can be moved into Roth IRAs right now. And over the following two years (2020 and 2021) almost all the rest could be moved over ($6,000 per person x 2 people x 2 years = $24,000).
Thanks. Not being able to get around the cap makes me think I might be better off just opening a brokerage account. Capital gains of 15 percent are not the end of the world. You are right about retirement. My wife's employer is phasing out her pension plan (defined benefits plan) and switching to a 401K. She is grandfathered in so she will at least get something. That's better than I have.
I am not familiar with ETFs but it looks similar to an index fund. Correct?
capital gains taxes can run from zero to as high as 23.80% plus in the past they triggered the amt tax on all other income .. also many states tax the gains at regular rates ...
depending on turnover and distributions , over the long term unless you are in the zero capital gains bracket even a 2% dividend can wipe out the effect of the lower capital gains rates over time .
as far as writing off losses , well that is like spending 3 or 4 dollars to get back one . that is never a good thing . tax loss harvesting as an investor is just kicking the tax can down the road . it can burn you like it did us if rates change . you are really just taking the cost basis pointer on the next investment and rolling it up in effect .
we delayed a asset sale just one year in 2014 and the capital gains rate jumped from 15 to 23.80% for the sale .. not only that but it tripped the amt tax too , so between state local and federal taxes it amounted to 30% tax from dollar 1 of total income . it was extremely painful .
but wait it gets better ... since it was two years before going on medicare that years income is what sets your medicare premium ... there was a surcharge of thousands a year on the premium from that sale.
so much in retirement is tied to taxable income , from getting ss taxed , to medicare premiums to any health care subsidies so in the end the difference between a roth vs a brokerage account can be significant
Last edited by mathjak107; 02-05-2019 at 03:44 AM..
I'm a huge believer in ROTH IRAs. We converted all of our Traditionals to Roths several years ago when they allowed taxes to be paid over 2 years. Taxes are eventually going up and Roths are a great hedge.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
!
