NT: Official Personal Finances Thread

[dathbgboy]

Personally I wouldn't put money in a roth , i'd go traditional then do a conversion to roth ira when my income is much lower in the future.

Heres a graph from the article showing the difference in contributing to a traditional vs roth.
I suggest people check out the entire article though.

[h1]Traditional IRA vs. Roth IRA [/h1]

[h1]So What’s the Big Deal?[/h1]


An example will help clarify how this works and will highlight how much money this could save you over the long run.



Imagine two 30-year-olds who hope to retire by the age of 40. To make things simple, assume they each start with nothing, make $60,000 a year, and can happily live off of $18,000 per year.



Investor A decides to max out his Roth IRA between now and when he retires at 40. Investor B instead decides to max out his Traditional IRA and then slowly convert it to a Roth IRA after he turns 40. Both invest all additional income into taxable accounts.



The following graph shows the value of the accounts of these two investors.

Investor A is represented by the light green lines and Investor B is represented by the dark green lines. The solid lines represent the investors’ normal taxable accounts, the dashed lines represent the investors’ Roth IRA accounts, and the dotted line represents Investor B’s Traditional IRA account.



As you can see, at age 40, both investors stop contributing to their accounts and begin withdrawing $18,000 per year from the taxable accounts. Investor B also begins converting his Traditional IRA into a Roth IRA at this time. Thanks to the fact that he is able to live on a reasonable income and has time to slowly convert the Traditional IRA into the Roth IRA, he is not taxed on the conversion and therefore ends up having exactly the same amount of money in his Roth IRA as Investor A does when they both reach standard retirement age.



What you’ll notice though is that Investor B actually has quite a bit more in his taxable account. Since he was able to invest pre-tax money in his IRA when he was working, he had more money to invest in the taxable account during his 30s and as a result, will end up with over $100,000 more than Investor A when he reaches retirement age!



It’s pretty incredible that a simple choice between two good options could result in a six-figure difference in retirement savings!

Repped, I have a Roth right now but will look at this article to learn more.

 

[capital sb]

Repped, I have a Roth right now but will look at this article to learn more.

Here are his tax articles that I recommend reading from him if you have time.

• Retire Even Earlier Without Earning More or Spending Less
• Traditional IRA vs. Roth IRA – The Final Battle
• The Ultimate Retirement Account
• Tax-Loss Harvesting
• Tax-Gain Harvesting
• Front-Loading
• Roth IRA Horse Race
• After-Tax Contributions and a Surprise Gift from the IRS
• Semiretirement
• Triple Value of Income
• How to Hack Your HSA

JL Collins Stock Series is definitely a must read for investing.

http://jlcollinsnh.com/stock-series/

 

[Xennial]

 
Personally I wouldn't put money in a roth , i'd go traditional then do a conversion to roth ira when my income is much lower in the future.

Heres a graph from the article showing the difference in contributing to a traditional vs roth.

I suggest people check out the entire article though.
[h1]Traditional IRA vs. Roth IRA [/h1]

How can you predict if your income will be lower or higher in the future tho

 

[capital sb]

 
How can you predict if your income will be lower or higher in the future tho

Very easy, at time of retirement will you be working full time? I assume no, and if you are working full time do you believe you will still be making the same amount or more. I would guess about 90% of people will be making much less in retirement.

I'd much rather pay taxes later on my retirement investments, hopefully pay no taxes at all on my investments at time of withdrawal. When you put money in a roth you have to pay taxes now, which also mean it cost more to max out a roth compared to a traditional ira.

 

[dathbgboy]

Repped, I have a Roth right now but will look at this article to learn more.

Here are his tax articles that I recommend reading from him if you have time.

• Retire Even Earlier Without Earning More or Spending Less
• Traditional IRA vs. Roth IRA – The Final Battle
• The Ultimate Retirement Account
• Tax-Loss Harvesting
• Tax-Gain Harvesting
• Front-Loading
• Roth IRA Horse Race
• After-Tax Contributions and a Surprise Gift from the IRS
• Semiretirement
• Triple Value of Income
• How to Hack Your HSA

JL Collins Stock Series is definitely a must read for investing.

http://jlcollinsnh.com/stock-series/

Going to add it to my Keep and check em out, truly appreciate the info broham

 

[crcballer55]

 

 
Interest rates on the loans are determined by the risk level. You can invest in anything from A+ to F grade loans depending on your risk tolerance.

Which grades have you been investing in and would you recommend putting money into roth ira or this?

I'm all the way from A-D, but weighted mostly in the C range since I want a return around 10%. It's my "play" money that would otherwise just be sitting in savings so I've been a little conservative since I'll need some of the funds every couple years for big purchases.

Personally, I only invest money in my Roth IRA into vehicles that have more than a 10 year track record. While the market hasn't shown great returns by in large for the past 6 years, the long term track record is promising. If you're well diversified in a portfolio of Blue Chip companies along with Small Cap and international you should be fine.

 

[sundoobie]

Very easy, at time of retirement will you be working full time? I assume no, and if you are working full time do you believe you will still be making the same amount or more. I would guess about 90% of people will be making much less in retirement.

I'd much rather pay taxes later on my retirement investments, hopefully pay no taxes at all on my investments at time of withdrawal. When you put money in a roth you have to pay taxes now, which also mean it cost more to max out a roth compared to a traditional ira.

You don't pay taxes for putting money in a ROTH. It's basically a savings retirement account that grows tax free. You don't report any of the income it makes every year, and one of the best things is that you can pull the principal out of a ROTH account after 5 years which is fantastic. I don't understand the point in converting a traditional into a ROTH once you're retired? There is no need to withdraw the money until 70 1/2 (required min distributions) that is unless you need the money so why pull money out of it or convert it and pay those taxes? In a traditional, yes you get some tax savings because it reduces your adjusted gross income but you can't take it out until 59 1/2 years old and if you do... not only do you have pay income taxes on the distribution but there is also that dreaded 10% penalty.

That article is not very factual because look at the example it uses... retire at 40 years old? Impossible. Living off 18k a year so 1,500 month which includes rent, food, utilities, etc.? highly unlikely.

 

[based mod]

Yea that article seems to go against everything I've gathered about traditional vs. Roth. I'm assuming that the majority of us are early in our careers and the income we bring in a lot less than say 25-40 years from now. That means a Roth now would be more beneficial than

Like what Sundoobie said, those figures are likely used to skew the results to favor what the author wants.

 

[cs02132]

I'm 23 about to be 24 and live at home still. I don't plan on moving out anytime soon.. My only bill is $200/month car insurance

I make about $600-$800 in checks and like $1000-$1500 in cash per month. I work for tips so it varies but it's about $2600-$3000 in total per month

This past August I had like 2k but I wasn't saving at all.. Just spending whatever :/ .. Now I save at least 1k a month.. If I didn't buy a bunch of **** in November/December i could have saved 1.5k each month. Still did 1k but now I'm going to do 1.5k every month

Right now I have 7k. My goal was to have 10 by my birthday (February 27th) but I spent a bunch so I might not make it .. If I'm cheap I'll do it tho lol. Long term goal is to have 20k by this time next year

My dad has been an Econ professor forever and he just helped me sign up for a vanguard account.. I think a mutual fund.. I'm starting with 3k and going to put 1k every month or every other month. I keep some in my bofa account and I like to have cash too. Also I just signed up for a bofa credit card which I'm probably only gonna use for gas, which I get cash back for so that's a plus

Man.. Saving like I have been has made me upset that I haven't been doing this for years. I've been working since I was 18 but I only just started saving. I wish I started like 2 or 3 years ago. Id easily have like 35k lol. There's a big difference between being 26 with 35k and 23 with it..

This part is off topic a bit but still related to money. tl;dr at the bottom

Spoiler

Warning: this next part might make me sound like a "degenerate" but trust me I'm not

I bet online on mma and soccer. I deposited $160 in May 2014. I've been playing with it since

Around this time last year, dec-Jan, i turned $400 into $2100 mostly thanks to mma but a bad month of soccer left me with $700 and I completely lost my confidence with my bets.. I've been at around $500-700 in my account since, but once again soccer has recently left me with about $110 lol .. I have been thinking about putting some $ in my account and starting over. My problem is that I have a mental block keeping me from doing it, ever since that bad losing month. I'm too scared to deposit money and lose it..once I get over it I know for a fact I will get back to where I was. It's been like a year, I need to get over it, it's keeping me from making money

I guess *technically* I'm only down $50 (started with $160, now at $110) but man.. going all the way up to $2100 back down to $110 seems like I lost soooo much more, which I why it's so hard for me

People in threads I post in do it for side $$ and for fun, but they make an extra like 15k or I've seen 17k a year. I'm not talking about doing that, but I need to get over it and start working my way back up. I know what I'm doing when it comes to mma but soccer is so damn hard to predict sometimes




TL;DR
I just need to get my **** together, not be a dumbass, and I can get back to making free $$

 

[capital sb]

You don't pay taxes for putting money in a ROTH. It's basically a savings retirement account that grows tax free. You don't report any of the income it makes every year, and one of the best things is that you can pull the principal out of a ROTH account after 5 years which is fantastic. I don't understand the point in converting a traditional into a ROTH once you're retired? There is no need to withdraw the money until 70 1/2 (required min distributions) that is unless you need the money so why pull money out of it or convert it and pay those taxes? In a traditional, yes you get some tax savings because it reduces your adjusted gross income but you can't take it out until 59 1/2 years old and if you do... not only do you have pay income taxes on the distribution but there is also that dreaded 10% penalty.

That article is not very factual because look at the example it uses... retire at 40 years old? Impossible. Living off 18k a year so 1,500 month which includes rent, food, utilities, etc.? highly unlikely.

You do pay taxes putting money in a roth it is after tax money, compared to traditional IRA which is pre tax money as long as you are eligible for the tax deduction. If you aren't making much now then sure roth is good for you, but if you are in the 25% and up tax brackets I don't think it is wise.

Retiring at 40 isn't impossible people have done it in their 30s and I plan to retire at 40,45 at the latest.

You would convert a traditional ira to a roth to allow the money to grow tax free while in the traditional account then pull the money out once in the roth. It is explained in the article. The graph was to show the benefits of traditional vs roth while in wealth accumulation mode.

The math in his examples aren't skewed at all, people go behind him and check his math all the time.

 

[jthagreat]

 


How can you predict if your income will be lower or higher in the future tho

Very easy, at time of retirement will you be working full time? I assume no, and if you are working full time do you believe you will still be making the same amount or more. I would guess about 90% of people will be making much less in retirement.

I'd much rather pay taxes later on my retirement investments, hopefully pay no taxes at all on my investments at time of withdrawal. When you put money in a roth you have to pay taxes now, which also mean it cost more to max out a roth compared to a traditional ira.

All of what you said is the exact opposite of everything i have read in the almost 10 years i have been reading about this.

gonna read the article, but again, exact opposite.

 

[capital sb]

All of what you said is the exact opposite of everything i have read in the almost 10 years i have been reading about this.

gonna read the article, but again, exact opposite.

What is the opposite? Explain
 

Edit: Sorry, for roth you pay taxes up front with after tax money then your investments grow tax free.

Tradition, no taxes up front and tax free growth.

http://jlcollinsnh.com/2015/06/02/stocks-part-viii-the-401k-403b-tsp-ira-roth-buckets/

 

[sneaksoy]

In general, it's suggested to invest in a Roth IRA when you're younger as you're presumably making less money than you will in the future. Say you make $60k now and are in the 25% bracket (idk if this is right, just a hypothetical), but in the future you'll make $100k and therefore be in the 33% bracket. When you withdraw at that point, you'll save yourself from that 33% tax by having paid the 25% up front. That's the general concept behind a Roth IRA.

 

[capital sb]

I'll defer the tax as long as possible, hopefully I will be able to withdraw in the 15% bracket when I retire.

 

[corymatthews]

Nice coincidence, I've been looking in to creating passive income streams and came across some of the peer to peer lending sites. I know they are not technically passive income as they do require some research and time, but they don't require too much time in my opinion. Most likely going to go with lendingclub. I've been doing my research and I've read that a good amount to start with is $5,000. Lets you spread out your investments with 200 lending notes. You can invest with less than that, but risk will go up as you'll be less diversified. Something I came across that seems to maybe be an issue is that LC states that for California residents (which I am), you must have an annual gross income of $85,000 and a net worth of at least $85,000. Or you can invest if you have a net worth of at least $200,000. Now I don't quite meet those requirements but I've read that there isn't a very strict policy regarding whether or not you meet those requirements. Seems like you just have to check a box, yes or no, to qualify. I guess it won't be too much of an issue I suppose.

If you want more information, here are a couple of good blog/articles I came across while researching...

http://www.moneyunder30.com/lending-club-investing-10210
http://www.mymoneyblog.com/prosper-lendingclub-investor-results-2.html
http://www.moneycrashers.com/lending-club-review-peer-to-peer-lending/
http://dumbpassiveincome.com/foliofn-note-trading-platform-lending-club-review/

Looks like achieving around a 10% return is more than doable. Looking forward to starting. Will keep you guys updated.

 

[sneaksoy]

I'll defer the tax as long as possible, hopefully I will be able to withdraw in the 15% bracket when I retire.

$37k a year? Man I hope to be withdrawing in the 33%+ bracket when I'm that old. Not sure how you plan on $37k/yr in retirement, and then getting taxed on top of that...

 

[based mod]

I'll defer the tax as long as possible, hopefully I will be able to withdraw in the 15% bracket when I retire.

I'll defer the tax as long as possible, hopefully I will be able to withdraw in the 15% bracket when I retire.

$37k a year? Man I hope to be withdrawing in the 33%+ bracket when I'm that old. Not sure how you plan on $37k/yr in retirement, and then getting taxed on top of that...

What he said. I'm saving now so I can live life enjoying the fruits of my labor later.

 

[capital sb]

I'll just leave this here...

Never Pay Taxes Again

 
Unless that income comes from qualified dividends or long term capital gains.  In this case, a married couple can have $19,500 a year in income AND $70,700 in investment income, TAX FREE (if that isn’t a strong signal to not work, I don’t know what is.)

If spending is kept below these levels (and thus incomes) then there will be no taxes

My game plan is to pay as little taxes as possible in retirement not 33% lol . I will be living very well with my desired yearly income from investments.

So how do you all plan on making 190K (single) or 230K (married) per year in retirement? What kind of money do you planing on saving/investing to sustain that lifestyle? What withdrawal rate?

 

[sole searchin]

Probably going to play around on Lending Club and see how it goes.

SepIRA thoughts?

 

[sneaksoy]

I don't know where you're finding this, but how do you expect to pull $70k a year out of a traditional IRA and only get taxed 15% on it? The government isn't letting you skirt taxes up front to withdraw as much as you want and only pay 15% at the end. Investment income in that sense is different than the income coming out of your IRA. You may want to talk to a professional tax planner instead of basing everything on internet Op-Eds.

In retirement I'll ideally have a consulting job where my experience and expertise at that age are what's earning that inflated salary, along with retirement income which would then be tax free from my Roth account(s). My lifestyle won't need nearly that much income but I'll be able to give away most of it and set up the rest of my family for good. Last thing I want to do is build up a solid retirement portfolio, die and then strap my family with a hefty tax bill to get any of that money.

 

[capital sb]

Everything is in the articles and links I have posted, if you chose to not read it then so be it. The tax strategies are well documented and approved by the IRS.

To pull 70K a year from my account that would require 1.75MM portfolio with a 4% withdrawal rate, I will be in that range if not more by retirement.

A lot of people just aren't aware of tax strategies and tax laws to avoid paying taxes and withdrawing money early. I don't need to see a tax accountant I've done my research 

 Information is out there people just refuse to believe it is possible.

 

[Majorbread]

^ Isn't the tax rate/structure the biggest variable of the whole debate though? Who thinks tax rates are going to get any lower than they are now?

With a traditional, say they move the LT capital gains tax to 20-25-30% When you went to withdrawal, wouldn't you be hit with the Cap gains tax + income tax?

 

[CrownRoyalDaddy]

This is a great thread.

Im 23 with a solid job (around 50k give or take before taxes) but not doing it anywhere close to some of you guys.

Long story short, i should have a bunch of money saved up from the last few years but instead I have practically nothing and some debt.

This year I plan on attacking the debt head on and eliminating all CC debt. Ill still have my car but it is what it is.

My girl wants to move out around september and i want to too. But this will obviously drastically impact my savings ability so it sucks at the same time.

 

[slicknick951]

This is a great thread.

Im 23 with a solid job (around 50k give or take before taxes) but not doing it anywhere close to some of you guys.

Long story short, i should have a bunch of money saved up from the last few years but instead I have practically nothing and some debt.

This year I plan on attacking the debt head on and eliminating all CC debt. Ill still have my car but it is what it is.

My girl wants to move out around september and i want to too. But this will obviously drastically impact my savings ability so it sucks at the same time.

Would you be able to convince your girl to wait a year that way you can knock out all of your debt this year (im not sure how much you have). Then next year reallocate the money you were using to knock out your debt to save for a down payment for something to buy.

If i could go back to a couple years ago I would have never left my parents house without buying something first. I wasted 4 years paying rent to realize that renting just isn't for me.

If you feel you have to get out by September don't over extend yourself and pay a lot for rent. Get something that is comfortable but don't over pay because in the end you want financial freedom to use your money on things that you choose to.

 

[capital sb]

^ Isn't the tax rate/structure the biggest variable of the whole debate though? Who thinks tax rates are going to get any lower than they are now?

With a traditional, say they move the LT capital gains tax to 20-25-30% When you went to withdrawal, wouldn't you be hit with the Cap gains tax + income tax?

Nobody thinks taxes are going lower. That isn't what I am talking about I am talking about paying taxes now and effectively giving up 25% of my investment.

If you have 2 people investing the same amount of money the person who invested in the tradition ira will have more money.

That is all that I am saying, I want more money to grow long term.

If I wanted to max out a roth it will cost me $6875, to max out a tradition account it will cost $5500 and I can invest the $1375 surplus.

Over a 20 year period that extra $1375 will be worth about 69K over a 20 year period.

People don't have to agree and that is fine, all I am saying is do your own research. Go with what works best for you and your financial plan.