An Interesting Financial Tool

[gae]

After going through that info, I've come to the conclusion that one can withdraw up to the net cost basis of all the securities owned without suffering any tax penalties.

<font size="2" face="Verdana, Helvetica, sans-serif">That is also my understanding, after the five year mark.

I wonder, though, why anyone would have more than one Roth. It's not like rollover IRAs from multiple employers; why not just put all the bucks into the same account?

The other thing to keep in mind about Roths is that at retirement, the distributions are tax free, since the tax was paid up front. That can be significant.

But there's something... just scratching at my brain about Roths. Seems I read something SOMEWHERE that a Roth isn't a good idea unless you plan to with more than your current income, adjusted for inflation, a Roth isn't a good idea.

Let me see what I can find.

note to reason: the bank of gae will take very good care of your money.

[LanDroid]

Just curious about the logic, you don't need the tax avoidance from a regular IRA? Lower your taxes now, but pay them later when income is presumably lower during retirement?

Edit: Oh, I see, I just looked at the calculator. Well, it seems to go against the advice I've heard as GAE was wondering. Seems like a Roth would be better for someone who isn't paying a lot of taxes now, but if you are, a traditional IRA would be better. [img]confused.gif[/img]

<font color="#000002" size="1">[ July 02, 2004 09:46 PM: Message edited by: LanDroid ]</font>

[gae]

Originally posted by LanDroid:
Just curious about the logic, you don't need the tax avoidance from a regular IRA? Lower your taxes now, but pay them later when income is presumably lower during retirement?

Edit: Oh, I see, I just looked at the calculator. Well, it seems to go against the advice I've heard as GAE was wondering. Seems like a Roth would be better for someone who isn't paying a lot of taxes now, but if you are, a traditional IRA would be better. [img]confused.gif[/img]

<font color="#000002"><font size="1">[ July 02, 2004 09:46 PM: Message edited by: LanDroid ]</font></font>

<font size="2" face="Verdana, Helvetica, sans-serif">Lan,
There's a funny little rule in the IRS regs about regular IRAs. If you participate in an employer sponsored retirement plan, and earn more than a certain amount of money, you're prohibited from contributing to a traditional IRA. I can find the limits for you, if you want, but they're low.

More proof that the government does not in any way encourage saving.

[LanDroid]

OK, but I thought Reason wasn't interested in his employer's 401K?

[cincygreg]

Simply put Reason, the economy is looking much better these days and appears to have turned the corner.
I was merely trying to point out that if Greenspan feels secure enough to mraise interest rates even by a little, then things must be going well.
Unemeployment has not risen in months.
Home slaes are at an all time high.
Interest rates in CD's and Annuitites are the highest they've been in years.

It's just a good time to get started on things if you havent yet.

[gae]

Originally posted by LanDroid:
OK, but I thought Reason wasn't interested in his employer's 401K?

<font size="2" face="Verdana, Helvetica, sans-serif">I can well understand why he isn't, since it's administered by 5/3 Bank. (A subject for another thread.) However, reason is smart, (that's why I like reason) and it's in his best interest to max out his 401(k) contribution, even without the employer match.

What you need to understand, Lan, is that reason is a rich, white republican, and as such, he's taking his retirement into his own hands.

First mother earth and now personal responsiblity. Where will it end?

[LanDroid]

Huh. I thought Reason said he was not rich, would no longer contribute to his 401K, and would probably vote for Mickey Mouse again this year.

<font color="#000002" size="1">[ July 03, 2004 08:44 PM: Message edited by: LanDroid ]</font>

[reason]

Originally posted by LanDroid:
Huh. I thought Reason said he was not rich, would no longer contribute to his 401K, and would probably vote for Mickey Mouse again this year.

<font color="#000002"><font size="1">[ July 03, 2004 08:44 PM: Message edited by: LanDroid ]</font></font>

<font size="2" face="Verdana, Helvetica, sans-serif">That's the problem: Reason is not rich. Or else Reason wouldn't live three blocks from gae and trav.

And reason will probably vote for Mickey Mouse this year, except Mickey's real name is John Kerry. How exceptionally painful this vote will be.

As far as gae's comment that I should still contribute to my company's 401k, even without the matching, the web link she provided suggested otherwise.

I will provide the reasons why I prefer to avoid my 401k:

1. 5/3 bank runs it. I hate 5/3 bank. I absolutely refuse to do business with them. This is for moral reasons and has nothing to do with optimal investment strategy.

2. My limited investment options in my 401k suck. Only recently have they offered mutual funds not run by 5/3. The ones run by 5/3 uniformly suck and dominate my investment options.

3. I cannot move my money out of the 5/3 401k until I retire or quit my job. In my IRA, I roll over from brokerage to brokerage if I so chose.

4. In my Fidelity account I have the exponentially more investment options in mutual funds than I do in my 5/3 401k. I can also purchase individual stocks, which I have.

5. Over the years, I've become less and less of a believer in the value of mutual funds. Most of them don't beat the S&P 500 index, so you'd be better served to put your money into a low cost index fund (like Vanguard).

6. Mutual funds are expensive. People seem to think no load funds are free. Now don't get me wrong, I have money in no load mutual funds for diversification purposes, but start doing a little number crunching and you'll see there's a lot of money being taken out. Let's just say there's no load fee. You've still got management fees. Then you've got expenses. Over time, skimming 2% off the top no matter how the fund performs adds up in ways you can't imagine.

I understand the argument that all one should worry about is how much you earn and not worry about the fees, and that's a good argument. But I think it's fairly easy to pick out a solid dividend paying stock, hold onto it and get your 8% return and eliminate the expenses and fees.

<font color="#000002"><font size="1">[ July 06, 2004 08:32 AM: Message edited by: reason ]</font></font>

<font color="#000002" size="1">[ July 06, 2004 09:21 AM: Message edited by: reason ]</font>

[reason]

Originally posted by cincygreg:
Simply put Reason, the economy is looking much better these days and appears to have turned the corner.
I was merely trying to point out that if Greenspan feels secure enough to mraise interest rates even by a little, then things must be going well.
Unemeployment has not risen in months.
Home slaes are at an all time high.
Interest rates in CD's and Annuitites are the highest they've been in years.

It's just a good time to get started on things if you havent yet.

<font size="2" face="Verdana, Helvetica, sans-serif">The recently announced employment figures had pundits second guessing the strength of the rebound.

Higher interest rates tend to have a negative effect on stock prices.

About those home sales. This is just me talking, but if there's one fear I have it's that the housing market will tank. Low interest rates drove the housing market. With funky, new mortgage programs, some of which lure people in with low teaser rates, people moved out of apartments in droves and into new homes. Those with homes stepped up.

I'm thinking that Greenspan knows he has to be exceptionally cautious about raising rates. We became addicted to low rates and the debt attached to it.

If inflation gets out of hand and interest rates rise, I can see a boatload of foreclosures on homes bought with low teaser rates and ARMs (though the use of ARMs was understandably slow when rates were at their lowest). All those foreclosers will increase the supply of homes on the secondary market. More supply means lower prices. This could spell trouble for home builders and financial institutions that are heavily involved with mortgage banking.

[reason]

Oh, and another reason why I don't like mutual funds. On top of the potential load fees, management fees, and expenses deducted from the returns, the straw that breaks the camel's back is getting hit with capital gains when the returns are down on the year! Yes, it happens.

That really steams me. So while you're paying taxes on gains that appear to you as losses, you're still paying them to manage the loss.