Investing Thread

[MASShole]

The money you put in a traditional IRA is fully deductable so if you max out at $6000, you can deducted $6000 from your gross. When you convert into a roth you then have to pay taxes for it, so it becomes a wash. You don't have to worry about paying taxes twice. If that was the case no one would recommend backdoor roth method.



$24k/year is high. In my area you only pay that much (or more) if it's one of those chain in-center daycare like Kinder Care. I think my 2 kids combined we pay about $1600/month. We do the $5000 dependent care FSA, which helps out a little. Yeah we can't wait till next year when my oldest starts kindergarden, however there's a chance we may send him to a private school that will be more then his actual preschool.

I think what to do with liquid cash depends on overall picture and goals. For us we are in a good position to invest a large portion of our liquid funds, but I understand about playing it safe. I'm even considering being really aggressive with our mortgage so we can pay it off in 10 years, but still debating if it's worth it outside of having that peace of mind.

You don't put money into a traditional, then convert it to a Roth when you're over that threshold. You put money into a non-deductible IRA then convert, hence paying taxes twice as you can't deduct that $6k from your income. That's my point. Over $203k, you can't deduct anything, so it has to go into a non-deductible IRA, then you convert, and pay taxes again. Below $203k, yeah, sure deduct it then convert if you'd like. My point on the individual 401k is that any money in a traditional IRA fucks with your conversion calculation, so I created it to avoid any of that headache. Right now we only have about $8500 in my wife's IRA, and since I created this 401k, I can add her to it and convert her money into a 401k at no cost as well, so we have $0 in traditional IRAs. Hooray!

This article is a few years old, but still accurate: https://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html

I always take the approach of cash flow and can I beat the the rate of my mortgage. I think my mortgage is 4.5%, so can I beat that with investments? Yes, even after tax, so I'd invest it instead. The peace of mind of having it paid off is really, really nice though.

I was a registered advisor about 15 years ago, and one of the thoughts in the time was around taking an interest only mortgage, writing it off on your taxes, investing that plus more into a cash whole-life insurance policy. Once your insurance policy goes over a certain dollar amount (depending on you and your needs) you can take a "loan" each year from it, and the growth and interest in the policy would pay for the loan amount. In essence, you'd be getting "free" money in that you don't pay taxes on it for the time you wanted to do that and the cash value of the policy would keep growing. It was an interesting way to do business for sure, and only pretty well to do clients coudl afford or manage that option. For us plebeians it was out of the question.

 

[boingyman]

You don't put money into a traditional, then convert it to a Roth when you're over that threshold. You put money into a non-deductible IRA then convert, hence paying taxes twice as you can't deduct that $6k from your income. That's my point. Over $203k, you can't deduct anything, so it has to go into a non-deductible IRA, then you convert, and pay taxes again. Below $203k, yeah, sure deduct it then convert if you'd like. My point on the individual 401k is that any money in a traditional IRA fucks with your conversion calculation, so I created it to avoid any of that headache. Right now we only have about $8500 in my wife's IRA, and since I created this 401k, I can add her to it and convert her money into a 401k at no cost as well, so we have $0 in traditional IRAs. Hooray!

This article is a few years old, but still accurate: https://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html

I always take the approach of cash flow and can I beat the the rate of my mortgage. I think my mortgage is 4.5%, so can I beat that with investments? Yes, even after tax, so I'd invest it instead. The peace of mind of having it paid off is really, really nice though.

I was a registered advisor about 15 years ago, and one of the thoughts in the time was around taking an interest only mortgage, writing it off on your taxes, investing that plus more into a cash whole-life insurance policy. Once your insurance policy goes over a certain dollar amount (depending on you and your needs) you can take a "loan" each year from it, and the growth and interest in the policy would pay for the loan amount. In essence, you'd be getting "free" money in that you don't pay taxes on it for the time you wanted to do that and the cash value of the policy would keep growing. It was an interesting way to do business for sure, and only pretty well to do clients coudl afford or manage that option. For us plebeians it was out of the question.

My bad it is called a non-deductible IRA. I haven't reached that point to having to do one yet so I guess I haven't paid attention to the details, but you only pay taxes again on interest earned. The original $6000 is not taxed.

Never heard of the whole-life insurance thing you mentioned. Sounds like something you do when you have too much money, lol...

 

[MASShole]

My bad it is called a non-deductible IRA. I haven't reached that point to having to do one yet so I guess I haven't paid attention to the details, but you only pay taxes again on interest earned. The original $6000 is not taxed.

Never heard of the whole-life insurance thing you mentioned. Sounds like something you do when you have too much money, lol...

If you're doing a conversion this way, you pay taxes on the full amount converted, not just any interest earned, hence the double taxation. My last job had me potentially earning way above the $203k threshold, so I thought it best to do the individual 401k to avoid all the hassle.

 

[boingyman]

If you're doing a conversion this way, you pay taxes on the full amount converted, not just any interest earned, hence the double taxation. My last job had me potentially earning way above the $203k threshold, so I thought it best to do the individual 401k to avoid all the hassle.

I believe it comes down to if you already have an existing traditional IRA or not. If you don't, then you avoid double tax of the amount you put in. If you do have one, then it will depend on how much you have total and the % of the amount you covert will be tax free. I think the only way around that is to rollover the deductible amount you have to a qualified 401k (if possible). I guess in my case when the time comes to having to do a backdoor roth I can get away from being taxed twice since neither my wife or I have a traditional IRA account.

Thanks for responding the post, I learned something new about backdoor roth.

 

[MASShole]

I believe it comes down to if you already have an existing traditional IRA or not. If you don't, then you avoid double tax of the amount you put in. If you do have one, then it will depend on how much you have total and the % of the amount you covert will be tax free. I think the only way around that is to rollover the deductible amount you have to a qualified 401k (if possible). I guess in my case when the time comes to having to do a backdoor roth I can get away from being taxed twice since neither my wife or I have a traditional IRA account.

Thanks for responding the post, I learned something new about backdoor roth.

Yeah, having money in a traditional IRA fucks up your calculations if you do it this backdoor way once over the $$ threshold. Hence, why I'm converting those to an individual 401k. Preemptive measures can help chart a savings course for sure.

 

[GSP_37]

~I am impressed by Apple's quarterly per-for-mance~.

Not the next Sony Walkman or Blackberry yet, MF'ers.